Weekly Stock Market Report: No Fear of the Fed

USD vs S&P500

I hope you enjoyed your weekend. Friday’s reports revealed another surprisingly strong round of CPI gains in May, again led by used car prices and airfare, leaving a steep climb in the y/y metrics that go well beyond the lift initially expected from “base effects.” We also saw a modest -9k initial claims decline alongside a welcome steep plunge in continuing claims of -258k that broke the pattern of disappointments for the continuing claims figures.

One of our popular reports last week was the CPI Data Report, click here to read it.

Below is a small excerpt from the ABS Advisor Market Intelligence Report. It is published every Monday morning to help financial advisors and investors, save time and outperform. We hope you enjoy it and please feel free to forward it to your friends.

Tip: Use this as a quick guide on the short-term direction of key markets. I once had a client that would call me nearly every day asking the direction of the markets. This is a quick cheat sheet to know the trend and help understand what is happening with the markets in the short term.

S&P 5004247.450.19%8.264248.384232.25Strong Bull
Crude (WTI)71.2290.62%0.44271.67370.64Bull
10 Year1.4640.46%0.0071.4671.448Bear
US Dollar Index90.469−0.04%−0.04090.60190.433Neutral

Week Ahead: Tapering on the Agenda?

Key Drivers

TIP – This is a 1-minute brief bullet-point summary. It is a tool that gives investors and financial a fast and simple list of what to watch for and talking points for the week.

  • Bonds rallied as Fed tapering fears eased, ECB maintained status quo
  • FOMC expected to maintain an accommodative stance while starting taper talk
  • BoJ expected to leave policy on hold, may extend covid aid program
  • Taiwan and Indonesia seen keeping rates unchanged at 1.125% and 3.50%
  • Australia: RBA minutes, Governor Lowe speech, employment data; NZ GDP
  • U.S. data includes retail sales, production, PMIs, and housing starts
  • CPI highlights Canada’s slate, along with housing starts, existing home sales
  • Eurozone CPI, production, current account; German HICP, PPI due
  • UK CPI, retail sales, BoE lending data and money supply awaited
  • SNB expected to keep policy steady as inflation remains below target

The dollar has remained firm versus most other currencies, trading in a typically narrow early-week range within a whisker of one-month highs by the measure of the DXY narrow trade-weighted index. This has been concurrent with the 10-year U.S. Treasury yield trading a few basis points above last week’s three-month lows under 1.430%.

However, there has been a steady decline in the USD while equities have climbed to new heights. The 1 day chart above shows the USD compared to the S&P 500. We think the trend will continue and is only consolidating right now.

The benchmark yield, to recap, dropped by nearly 15 bp last week, despite May CPI out of the U.S. coming in hotter than expected at a 13-year high of 5.0% y/y. The price action essentially marked a capitulation of laggard bond bears in the face of the prevailing, Fed touted dominant view that inflation will be transitory, due to y/y statistical base effects and reopening bottlenecks, where a resurgence in demand has been exposing supply bottlenecks.

This backdrop intensifies the focus of markets on this week’s FOMC announcement, on Wednesday. This backdrop intensifies the focus of markets on this week’s FOMC announcement, on Wednesday. We expect the Fed and Chair Powell will stress that there will be no imminent policy shifts. Rather a wait-and-see stance should prevail for some time into the future since the criteria of “substantial further progress” on the goals has not been met, and as the data have been too noisy for officials to get a clear view.

BEAR Alert: We believe there could be a risk of another shutdown due to Covid Variant Delta. This variant is causing major problems in India and now spreading fast. This weekend we found out that China is shutting areas down again to try to contain it. The good news is that the Pfizer vaccine protects against it.

Many “Red” areas like Florida and Texas are unlikely to shut down again, but we think Democrat-controlled areas like California and NY could shut down. I live in Florida and we have been “back to business” for several months. Everyone I spoke to here was against a shutdown. The media will likely hype the fear and we will see some kind of dip in the markets. It is too early to know yet if the variant will be a serious threat.

A busy data slate is also of interest stateside, but the FOMC takes center stage. The BoJ is also on tap where markets will be alert for an expansion of the Covid aid program.

Also expected on hold are SNB, Bank Indonesia, Bank of Taiwan. The busy Chinese slate should show some slowing in the robust recovery. In Europe, the ECB is out of the way with its steady stance and ongoing commitment to “significantly higher” PEPP purchases, while data is largely backward-looking and will not impact the policy outlook.

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The Advisor Market Intelligence Report Includes:

  • Key Market Drivers – Know what is directly affecting the markets.
  • Index & Sector Trends – Determine which sectors or areas are trending up or down.
  • Global Market Analysis – Get a high-level picture of the US and global economy.
  • Stocks to Watch – High-quality blue-chip and dividend income stocks to watch.
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