What a difference a week can make! Stocks recovered what they lost this week, and went on to make new highs. The outcome of the stimulus bill proposed by President Joe Biden will confirm the next trend in the market.
Let me put the record straight. Last week, I wrote that I was expecting stocks to fall, and, hopefully, preparing readers for a recession that could be between 10 and 15 percent. That was a mistake. Instead, traders bought a 3 percent dip last week and, at this point, we are now back to square one. Well, not at all.
The U.S. dollar, the 10-year U.S. Treasury bond and the price of gold have all moved sharply since last Friday. The greenback, as represented by the U.S. Dollar Index, has gained 1.22 percent. That may not feel like much, but in the world of money, that ‘s a big move. If it continues to move from here, we will see some of the biggest natural resource winners in the market hit a brick wall.
In terms of interest rates, the yield on the 10-year Finance bond is now rising in the 1.14 to 1.15 per cent range. The rise in rates mirrors the ongoing talks in Washington about the timing and size of the latest stimulus package. Here’s why.
There is a whole breed of bond market investors out there (called bond vigilantes) who are quick to buy or sell bonds based on how they explain that government monetary or fiscal policy movements will affect inflation. In this case, additional stimulus by Biden administration would be considered inflation, so the vigilantes are selling bonds.
Remember, there is an unstable relationship between the price of bonds (which is declining) and the yield or interest rate. Prices down; levels up.
Commodities, and to some extent, emerging markets, could experience profitability if levels remain flat and the dollar soars. Which brings us to precious metals, especially gold and silver. This week, gold fell below $ 1,800 an ounce, due to a stronger dollar and higher interest rates such as kryptonite to gold.
Normally, money would have gone down as well as his bigger brother. And it is, but with almost the same percentage points.
You can thank Reddit / Robinhood merchants for that. Following the initial success with GameStop, some retailers believe that they can push the significantly shortened cash price higher with a large and unified purchase of the currency exchange fund.
I doubt they will succeed, because money is a huge global commodity that would require a lot of purchasing power to do more than move the price of money in the short term. I would not recommend readers to participate in this endeavor, although I like money for other reasons; but wait until the profiteering subsides.
We are halfway through the employment season, and the results have surprised investors. Initially, Wall Street was pushing for an average decline of 10 percent in numbers, but at this point, the overall deficit is less than 1 percent. These results generate confidence in analysts ’forecasts for this year, which are currently in the 20 to 25 percent-plus range.
These expectations are based on the success of the U.S. vaccination program and the reopening of the economy. That’s why I’m bullish over the medium term, even though I still think we’ll experience a return somewhere in this first quarter.
On the upside, I could see the markets approaching the 3,950 to 4,000 level on the S&P 500 Index in an explosion of bearish volatility.
As the market climbs, I advise investors to slowly but surely take some profits in those stocks where you have experienced outside gains. . This is not market time. This is common speaking.
You’ll be glad you did, if only because it allows you to buy the same or different stocks at a cheaper price.
Bill Schmick is registered as an investment advisory representative at Onota Partners Inc. in the Berkshires. He can be reached at 413-347-2401, or email him at [email protected].