Markets were able to hold up on the back of blow out earnings from Amazon and other tech companies, finishing flattish for the week. The S&P500 made a lower high and a lower low compared to last week.
The S&P500 is exhibiting major indecisiveness as illustrated by the last two weekly candlesticks.
The 10-year yield peaked at 3.03 percent, and then fell back through 3 percent on what we think was the result of a dovish ECB and rally in bunds. Bond bulls are getting lathered up, and may be able to take yields 5-10 bps lower.
We think they are wrong, however. The fundamentals and the flow technicals just aren’t there. The only thing they have going for them are the record shorts in futures.
The 10-year yield will end closer to 4 percent than 3 percent at year-end, in our view.
Also, whiffs of stagflation in the air,
(Bloomberg View) — Investors better wake up to the growing risk of stagflation. The coming weeks promise to deliver the verdict on how they should be positioned.
By all metrics, inflation is heating up. But it’s not clear the same can said for underlying economic activity.
According to producers, input costs have risen for six of the past eight months. And it’s not just big companies that are feeling pressure. One in four small businesses say they plan to raise prices, a 10-year high, according to the National Federation of Independent Business. Inflation’s persistence will finally begin to trickle through to consumers. – Bloomberg Views, April 25
The market had every reason to rally hard last week. Blowout earnings, lower yields, and Peace on Earth breaking ou in Korea, yet it didn’t. It didn’t sell-off either, which leaves the JFK-Trump S&P analog diverging for the week. This past week was the start of the big downdraft in stocks in 1962.
We expect to see stock weakness over the summer.