The S&P 500 has rallied over five hundred points since March 15th and that is a good sign that we will eventually make new highs later this year. However, the S&P is like beginning a pullback to correct this leg higher into next week so there will be a test of the sustainability of this big rally. If we are in the early stages of a bear market like some say, we should push through the support zone and take out the bottom of this chart in April. A break of 4000 would signal the longer-term trend lines are breaking.
However, I expect that the support zone should hold and if it does that would show we are back to trending and that the February low (not pictured) will be a major pivot in the chart. So, the month of April will be important from a technical perspective as re-tests or pullbacks always give the clearest information on just how strong any low is in a chart. The longer the March and February lows hold the better prospects for new all-time highs later this year. We will probably be trading around this level for the next 1-2 months so we likely see more of a trading environment in the near future.
The Yield Curve
The Treasury curve continues to show signs of inversion as 10Yr yields are beginning to dip below 2Yr yields. The front-end of the curve is ridiculously steep right now and an inversion to the 3Mo would be a red flag that an economic slowdown is on the horizon. The number of rate hikes is still in question for 2022 as inflation may reduce consumer spending and growth so the Fed may be limited in their newly minted hawkish policy. Also, the labor market is still recovering from the pandemic so that should provide some relief to supply chains and that may influence the rate of change of inflation which could be a significant factor for the Fed. There are many variables to consider regarding the yield curve right now but the shape of the curve is signaling caution.
Chart of the Week!
More than 330 companies have announced their withdrawal or suspension of activities in Russia after the sanctions issued by countries opposed to the invasion of Ukraine.
Economic & Central Banking Snippets
- With a healthy gain of 431,000 jobs in March from February, and previous figures revised up a total of 95,000, nonfarm employment is now down just 1.6 million from February 2020, before the start of the pandemic. (WSJ)
- The broad picture of recovery masks the underlying shifts in economic activity spurred by the pandemic. People are buying more goods—especially online—so employment in transportation, warehousing and retail has surpassed levels in February 2020. Leisure and hospitality, state and local government, and education and health services are among the sectors that are still lagging. (WSJ)
- There are now over 11mm job openings in the United States.
- Private sector wages and salaries in February saw a 0.9% monthly increase and are running at a 10.4% annualized pace over the past 6 months.
- The March ISM Manufacturing Index slipped slightly lower to 57.1 as new orders fell sharply and showed the weakest read since May 2020.
- S&P CoreLogic said their home price index for January rose 19.2% compared to 2021.
- The Eurozone saw an accelerating CPI for March that was +7.5% higher than last year and up from +5.9% in February.
- Analysts predict U.S. sales of new vehicles will likely post a steep decline this quarter, as the industry works to overcome a global chip shortage and supply-chain issues that have cut inventories. New vehicle sales were likely below 3.3 million in the first quarter, down 14% from a year ago, according to industry analysts. (Boockvar)
- The February Personal Consumption Expenditures (PCE) rose 6.4% compared to last year and reached a 40yr peak in February and the fastest rise since 1982. The Core PCE price index, which excludes volatile food and energy costs, rose 5.4% in February from a year before, the sharpest 12-month rise since 1983.
- The Biden administration plans to release 1 million barrels of crude oil a day (roughly 1% of global demand) from the Strategic Petroleum Reserve over the next six months, or 180 million barrels in total. This is the biggest-ever drawdown from the country’s emergency stockpile of roughly 568 million barrels. The goal is to help calm oil prices. But taking an additional 180 million barrels out of the SPR, which is already somewhat depleted after two recent drawdowns, could leave around 300 million barrels in reserve, according to calculations from RBC Capital Markets. The obvious concern about such a large drawdown is that the market’s attention could shift to an impending loss of this shock absorber. (WSJ)
That is all for now and thank you for being a subscriber!
President – Kisco Capital