Gold and Crypto Climb To New Recent Highs (Wall Street Cheat Sheet)

s&p 500 1-17

A half-full glass is better than none at all. Indications that the Federal Reserve Board of the United States would soon adopt a more dovish stance are being welcomed by investors. Chairman of the Federal Reserve Board Jerome Powell did not use his Tuesday opportunity to quell investors’ newfound appetite for risk.

The US inflation numbers for December were also spot on with forecasts, showing a further cooling of pricing pressures.

The dollar and bond yields fell as a result of this relaxation. According to Eurostat, industrial production in Europe in November was more robust than projected, indicating that the economy is holding up well.

Gold and crypto are making serious moves this week. (Chart and info below)

Still, investors are wary because they need to predict how much damage rising interest rates will do to the economy in the months ahead.

Debt Ceiling Battle

The use of the debt ceiling as a bargaining chip is often met with the alarmist threat of “default” from the United States. Now, in these disputes, the precise context of that term is crucial. As far as the law is concerned, there is only one possible definition of “default”: the inability to pay interest or principal on US Treasurys.

But in these arguments, politicians frequently resort to redefining terms to advance their agendas. The most common example is the allegation that “default” means “failure to pay on any obligation.” That would include payments to contractors, suppliers, and others, as well as the main budget.

That, however, is not the default, and you know it. How? There have been shutdowns, including a lengthy one from late 2018 to early this year. Many employees are furloughed and not compensated during these times. Many government agencies are not necessary will be shut down, and suppliers don’t get paid.

Yet those are never referred to as a default. As recent as the 2018–2019 shutdown, which followed a severe market drop unrelated to government operations, stocks continued to rise.

Stockholders Prepare for Disappointing Fourth-Quarter Results

Market analysts anticipate that S&P 500 firms will report a quarterly profit decline of around 4% compared to the same period a year ago, as reported by FactSet. This would be the first quarterly profit decline since the epidemic’s beginning. According to data compiled by Goldman Sachs dating back to 1986, they anticipate earnings to continue decreasing in the first half before rebounding to finish up 4% for the full year.

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That doesn’t seem too bad, but it’s really the lowest prediction in recent memory, and it’s far worse than early 2002 when the dot-com boom was bursting and early 2009 when Lehman Brothers went bankrupt.

CALENDAR & EVENTS

  • Wednesday January 18: Retail Sales (MoM) (December)
  • Friday January 20: Existing Home Sales (December)
  • Fed Talk
  • Debt Ceiling Fight

US citizens start their week with a day off on Monday due to a national holiday (a day dedicated to Martin Luther King). The first estimate of Chinese GDP for Q4 2022 will be released on Tuesday, and on Wednesday, the United States will release two critical statistics: retail sales and producer prices for December. Weakness in traditionally strong retail sectors like apparel, furniture, general merchandise, and department shops is anticipated to impact the December retail sales total in 2022 significantly.

On Tuesday, the German ZEW financial confidence index will be released, and on Wednesday, Christine Lagarde, the head of the European Central Bank, will give a speech. On the other hand, from January 16-20, Davos will host the World Economic Forum.

The Treasury Department has warned that the United States will hit its debt ceiling on January 19, at which point exceptional measures will be required from Congress to prevent a default. According to Fairlead Strategies’ technical analysis of the market, investors may be getting too far ahead of themselves since more than 60% of S&P 500 equities are currently experiencing short-term overbought situations.

BONDS

Consistent with forecasts, CPI data was released last Thursday, further substantiating the deceleration of inflation in the United States. Although it is still too soon to declare triumph, investors opted to look on the bright side. The Federal Reserve may feel more comfortable raising interest rates by 25 basis points at its next policy meeting on February 1 in response to this new positive statistic (how much relief is dependent on how it is interpreted).

The yield on 10-year bonds is nearing its all-time low, reached in December, and stands at 3.40-3.35 percent. Long-term rates might also fall in Germany since the country’s benchmark Bund yield is hovering at its 34-day moving average of 2.16 percent. The 1.93% and 1.77% marks represent the subsequent support and resistance levels.

COMMODITIES

OIL & ENERGY

In the energy sector, the price of oil has recovered this week. After a dismal start to the year, they are looking up. Oil prices have risen sharply this week, helped by the declining value of the dollar and the subsequent revival of investors’ appetite for risk. Since then, oil prices have followed suit, with Brent now at USD 84.60 per barrel and WTI at USD 79. The Dutch TTF has been hovering around 65 EUR/MWh while the price of natural gas in Europe continues to fall.

Precious Metal and Gold

As a result of a weakening dollar, hopes for less restrictive monetary policies, and China’s reopening, investors have shifted towards a “risk-on” mindset about industrial metals. The price of copper per metric ton in London has risen to $9,000. Gold and other precious metals profited from a similar trend when bond yields fell. As of right now, one ounce of gold can be purchased for almost $1900.

CRYPTOCURRENCY

This week finally brings some good news for crypto investors. At the time of writing, Bitcoin’s value has risen by almost 11%, back above $19,000. Due to investors’ renewed willingness to invest in high-risk assets, the cryptocurrency market’s overall capitalization has risen to above $70 billion. When it comes to restoring investor confidence following the disastrous events of 2022, the cryptocurrency ecosystem will need to look inward for powerful catalysts.

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