Santevote tirades
Because the stock market moved sharply and hit all-time highs on the S&P 500 and Nasdaq, many are wondering if they missed the boat. The problem is that we have three companies worth $3 trillion (or very close to it). market value, and as such will move the market disproportionately.
Once again, we have a situation where the equal-weight S&P 500 lags the S&P 500, as sheer market cap doesn’t matter if all stocks are equally weighted in the index.
Charts are for illustration and discussion purposes only. Please read the important disclosures at the end of this commentary.
This means that the market will be hostage to fluctuations in three stocks. If they correct simultaneously, the market is more likely to correct, and more likely to rise if all three rise. In order for the broader market to catch up, we… Need a decline in Treasury yields without seeing a significantly weaker US economy.
However, Jerome Powell will hold his FOMC press conference this week. It is difficult to predict what he will say. Sometimes it shakes up the markets, other times it is as pessimistic as can be.
If it were not for “equivalent rent to the owner” – a concept that does not exist in Europe – our interest rate would have already fallen – the same as the EU interest rate, where the European Central Bank already cut interest rates last week.
The most optimistic thing Powell could do is cut the federal funds rate this week and explain his view on lower inflation, but the chances of that happening are very slim. The next most optimistic thing he could do is give us a tougher timeline for when the federal funds rate will be cut.
We have seen some weakness in the labor market, as non-farm payrolls came in strong last week while the unemployment rate rose to 4%, up 0.5% from a low of 3.5% in July of last year. This combination of indicators is puzzling, but it does indicate some weakness in the labor market.
Jerome Powell has already indicated in the minutes of the previous FOMC meeting that if the labor market is weakening, they will be inclined to cut the federal funds rate even before inflation gets close to 2%.
If Jerome Powell remembered his earlier comments, he could channel Wayne Gretzky and “skate to where the ball will be,” and cut interest rates sooner rather than later.
Gold may have entered a larger consolidation zone
I don’t expect a major drop in gold prices, but I do think some sort of consolidation is warranted, given the massive rally since March. I think the gold market is currently reacting to the rise in Treasury yields on the back of news of a strong jobs report, which is not as strong under the surface as it originally appeared.
The moment Treasury yields start to trend downward, and we have a tougher timeline on the Fed’s rate cutting cycle, I think gold will resume its advance.
Charts are for illustration and discussion purposes only. Please read the important disclosures at the end of this commentary.
Keep in mind that the price of gold tends to move erratically. It tends to rise, then consolidates for a while, then may rise again. I don’t see any prerequisites for a bear market in gold, other than to say that corrections are usually the result of a previous rally.
The bigger the rise, the bigger the correction will sometimes be, and that could lead to a bigger consolidation, but I still see this happening in a longer-term bull market for gold bullion.
All content above represents the opinion of Ivan Martchev of Navellier & Associates, Inc.
Disclaimer: Please click here for important disclosures found in the About section of the Navellier & Associates profile accompanying this article.
disclosure: * Navellier may hold securities in one or more of the investment strategies offered to its clients.
Original post
Editor’s note: The summary points for this article were selected by Seeking Alpha editors.
