Following its post-summer malaise, the S&P 500 has sternly gained steam, bouncing 9.5% off the October 27 low. Fueled by a softening CPI print, surging performance from top-heavy constituents, and a favorable technical backdrop, the index has its January 2022 all-time highs in sight. It’s been 471 trading days since the S&P 500 reached its all-time high of 4,796.56 on January 3, 2022. This marks the 11th time since 1950 that it’s traded below a previous all-time high for over a calendar year on a total return basis; the last time being March 2012, which lasted for 1,128 trading days. The longest streak since 1950 occurred between September 2000 and October 2006 when the index traded below its previous high for a staggering 1,541 days. The next six weeks are among the best seasonally for stocks on the calendar. And although breadth remains relatively underwhelming, technology-oriented names continue to be a propellant.
Trading recommendation: buy 4455 and take profit 4550.
The US Federal Reserve's monetary policy is an important factor that has historically had a strong impact on gold. The US central bank targets core inflation at 2.5%. It considers this to be the best measure of inflation in the economy. Core inflation stood at 4% at the end of October and has been on a steady downward trend since last autumn. The Funds rate is now 1.5 percentage points higher than core inflation, and this is generally sufficient to bring inflation down, as numerous studies have shown. If inflation does not raise, the Fed will not raise rates, which seems to be favorable for gold.
Trading recommendation: buy 1957 and take profit 1985.
Benchmark 10-year Treasury yields have plunged over 50 basis points after briefly surpassing 5% in late October. Reduced longer-term debt auctions, cooling inflation, slowing economic activity, and rising expectations for an end to the Federal Reserve’s rate hiking campaign contributed to the pullback. Elevated short positions in 10-year Treasuries could trigger a short covering rally and/or increased volatility in the Treasury market. Rate hike expectations disappeared following the news, while expectations for a rate cut were pulled forward to May. This is a positive signal for oil.
Trading recommendation: buy 74.20 and take profit 76.80.