Tag: Gold

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The Weekly Wrap: March 27, 2023

Week in Review

Stocks rebounded last week, rising more than 1%. The NASDAQ Composite continues to be the leader in 2023, up nearly 13% for the year. The Dow Jones Industrial Average, meanwhile, remains in negative territory. Interest rates fell modestly, and the US Dollar had its largest weekly decline since January. Oil prices rose 3.8%, offsetting some of the prior week’s 13% drop. Gold slipped 0.6%, and Bitcoin rose 1.9%.

The Federal Reserve raised its benchmark interest rate for the ninth consecutive meeting last Wednesday. The 0.25% hike was smaller than what most analysts expected prior to the failures of Silicon Valley Bank and Signature Bank, but turmoil in the financial sector was not enough to make the inflation-focused Fed keep rates unchanged. Notably, the FOMC statement, along with the quarterly Summary of Economic projections, implied that rate hikes will soon be in the rearview mirror. Markets are priced for more extreme reversal, including a series of rate cuts by year-end. Federal Reserve Chair Jerome Powell, however, reiterated at his post-meeting press conference that containing inflation was his top priority, and the Fed wouldn’t hesitate to reaccelerate the pace of policy tightening if needed.

Market Internals

Less than half of all S&P 500 stocks are in an uptrend, and that’s true whether you’re looking at them on short, intermediate, or long-term timeframes. Recent weakness has been most pronounced in cyclical sectors – Energy, Materials, Industrials, and Financials. Those sectors were the leaders in 2022. Now they’re the clear laggards.

Trends within the Information Technology sector are the healthiest. Nearly two-thirds of stocks in that sector are above their 100 and 200 day averages. And more than half are above short-term averages. Health Care, Consumer Staples, and Utilities all benefited from risk-off action within the last week.

What’s Ahead

Here’s the key economic data scheduled for this week.

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Currencies

By the middle of January, the US Dollar Index was down than 10% from its September peak. The move pushed the index below its 2016 and 2020 peaks for the first time in nearly a year – a heartening development for equity market bulls, who watched Dollar strength wreak havoc on returns in 2022. The downtrend continued as we moved into the second month of the year, and the first trading day of February brought with it new lows for the index. All seemed well.

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The Weekly Wrap: February 27, 2023

Week in Review

The S&P 500 had its worst week since December and the Dow Jones Industrial Average dropped 3%, falling into negative territory for the year. The NASDAQ Composite led equity declines for the week, but the growth-focused index is still the best performing major index in 2023, up 8.9% since December. The US Dollar Index jumped 1.3%, its largest 1-week gain in 5 months, and bond returns continued to disappoint as 10-year Treasury bonds fell 1%. Crude oil was flat, and gold prices fell. Bitcoin dropped 6%.

Inflation data released in the month of February consistently disappointed market participants and Fed-watchers alike, as disinflationary trends from November and December slowed. Last week, market declines accelerated when the BEA published updated GDP estimates for Q4 2022 and the PCE Price Index for January. Together, the reports painted a rather bleak picture: growth from consumer spending is slowing and will face even more pressure as excess savings are depleted. Meanwhile, the disinflationary benefit from goods deflation is dissipating, while services inflation continues to creep higher. One month of data does not make a trend, but anyone hoping for evidence that the Fed can achieve a ‘soft-landing’ was surely disappointed by last week’s news.

Market Internals

Despite February volatility, more than half of all stocks in the S&P 500 are in long-term uptrends, as indicated by their positions relative to a moving average price. Between 50% and 60% of issues are above 100 and 200-day moving averages. Short-term trends, though, are significantly weaker. More than 80% of stocks companies are trading below a 20-day moving average.

Uptrend breadth is strongest in risk-on areas of the market. Three-quarters of stocks in the Financials and Consumer Discretionary have healthy, long-term technical structures, while more than 60% of members in the Materials and Industrials sectors are similarly strong. The Utilities and Real Estate sectors are in the weakest technical positions.

What’s Ahead

We’ve got a full week of economic releases ahead, but it’s mostly second-tier data. On Monday, we’ll get January numbers for durable goods and pending home sales. The Dallas Fed will release February numbers for their Manufacturing index as well. On Tuesday, it’ll be home prices, Consumer Confidence from the Conference Board, and three more Federal Reserve bank activity surveys: Chicago, Richmond, and Dallas (services). February manufacturing PMIs from both S&P Global and the Institute for Supply Management are set for Wednesday, and the services portion will come out on Friday. The final read on Q4 unit labor costs and productivity is slated for Thursday.

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Precious Metals Have a Problem

Everything seemed to be working in January. US stock prices jumped 6%. International stocks were up even more. The bond market rallied, cryptocurrencies ripped higher, and gold prices soared. Even Bed, Bath & Beyond, a company on the verge of bankruptcy filing, managed to turn in a positive performance. No matter where you put your money, you probably had a good month.

Unless you put that money in silver.

It’s not like silver had a bad January. Prices for the popular precious metal fell less than 1%, a fraction December’s 8% gain. But in a month where just about everything else was in rally mode, silver was notably absent from the party.

It was a sign that not all was right in the world of precious metals.

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Fixed Income

Interest rates dropped in January, providing fuel for the equity market rally and setting the stage for growth stocks to outperform their value counterparts. The correlation between stocks and bonds is nothing new – it drove market all throughout 2022. Check out how closely the two moved together last year:

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The Weekly Wrap: January 30, 2023

Week in Review

Stock prices continue to rise in 2023, led by last year’s laggards. The growth-concentrated NASDAQ Composite, which fell 33% in 2022, has jumped 11% in January. The value-tilted Dow Jones Industrial Average is up only 2.5%. The more balanced S&P 500 index has climbed just over 6% to start the year. Interest rates rose last week, pushing the price of 10-year Treasury bonds down 0.7%, while the US Dollar Index was flat. Bitcoin continued to rebound, climbing another 1%, and gold prices rose moderately. Crude oil has been volatile to start the year. It fell 2% last week, but is down less than 1% for the month.

This week, the Federal Reserve will give us insights into how it is evaluating recent inflation readings. December’s measures for the Consumer Price Index, the Personal Consumption Expenditures price deflator, and the Producer Price Index all showed a marked deceleration. That’s given investors the confidence to reduce their expectations for rate hikes and increase their expected odds of avoiding a Fed-induced recession. Another rate hike is expected on Wednesday, but markets will key in on Chairman Jerome Powell’s post-meeting press conference for clues on when the series of hikes will end.

Market Internals

The advance in stock prices to start the year has been broad-based among risk-on sectors. More than 80% of stocks in growth areas like Information Technology, Consumer Discretionary, and Communication Services are above their 20, 50, and 100-day moving average prices. In value sectors, 70% of members are above those same levels.

A less rosy picture exists for sectors traditionally associated with avoiding risk. Only a third of Consumer Staples and Utilities stocks are above short-term averages, and less than half are above long-term average prices. It’s clear that in recent months, the marginal investor’s focus has shifted away from preserving capital and towards growing it.

What’s Ahead

It’s Fed week, with the latest interest rate decision set for release on Wednesday afternoon. It’ll be followed by the usual press conference by Jerome Powell. Before then, we’ll get an update on manufacturing activity from the Dallas Fed (Monday), updated home prices for November, Consumer Confidence, and the Chicago PMI index (Tuesday), and a flurry of data on Wednesday morning. That will include ADP’s employment change estimate for January, job openings for December, and manufacturing PMIs from both S&P Global and the Institute for Supply Management. On Thursday, we’ll get an update on nonfarm productivity and labor costs from the fourth quarter. The services components of the aforementioned PMI surveys are published on Friday, but they’ll most likely be overshadowed by the nonfarm payrolls report scheduled for that morning. If all that isn’t enough, we’re also in the heart of Q4 earnings season. More than 20% of the S&P 500 will report results in the coming week.

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The 10 Charts to Watch in 2023

It’s a new year, so there’s no better time to take a step back and think about what will drive markets in the months ahead.

The Components of Inflation

At his November 30, 2022 speech, Federal Reserve Chair Jerome Powell described the 3 primary components of inflation – Core Goods, Housing Services, and Core Services less housing. Core goods drove the first wave of this inflationary cycle, as surging demand for tangible products during the pandemic came face-to-face with sagging production and supply chain disruptions. The next wave was led by a spike in the cost of housing.

Core goods inflation peaked in early 2022, and housing will likely peak around the middle of this year (see Figure 3 below). The Fed will look past what it sees as ‘transitory’ declines in core goods and housing inflation, and instead focus on the price of core services. These charts are from his presentation:

The Tightening Cycle

Powell and Co. claim they’ll do whatever it takes to cool inflation, even if it pushes the US economy into recession. It’ll take higher interest rates for longer, according to their models.

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Fixed Income

The bear market for bonds that began in 2020 looks set to continue in 2023. The swing lows from last summer acted as resistance in November/December, and now 10-year Treasury futures are approaching their lows from the fall.

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The Weekly Wrap: January 3, 2023

Week in Review

Stock prices fell modestly in the final week of 2022. It was the first year since 2018 in which stocks finished a calendar year in the red. The S&P 500 dropped 19.4% for the year, the Dow Jones Industrial Average declined 8.8%, and the Nasdaq Composite fell 33.1%. Treasury yields rose again, with the benchmark 10-year rate ending the year near 3.9%, more than double the 1.5% seen at the end of 2021. Crude oil ended 2022 just above $80 per barrel, 6.7% higher than last December, while gold prices rose last week to end the year unchanged. The US Dollar gave up some ground, but still rose more than 8% for the 12-month period. Bitcoin rounded out a disappointing year with another 1.7% drop.

The final week of the year largely mirrored the previous 51: Mega cap tech and tech-like stocks faced heavy selling pressure, as rising interest rates forced investors to recalibrate how they value future growth prospects. 2022 will long be remembered as one of the worst years ever for investors, as the traditional 60/40 portfolio fell by double-digits. Let’s hope 2023 offers better outcomes for all.

Market Internals

Just under half of all S&P 500 stocks are in long-term technical uptrends, based on their relationships with a 200-day moving average. Breadth is similarly mixed on 50 and 100-day timeframes, but somewhat weaker in the shorter term: Less than a third of stocks are above their 20-day moving average price.

Long-term breadth is strongest in Energy stocks, as it was for nearly all of 2022. Seventy percent of the sector’s members are above 200-day averages. It’s also the strongest sector on shorter timeframes, three quarters of its members are above their 20-day average. The Real Estate sector stands out for its relative weakness – nearly all of its constituents are in technical downtrends on 20-day and 200-day timeframes.

What’s Ahead

We’ve got a holiday-shortened week to start the year. Markets are closed on Monday to celebrate the new year. On Tuesday, S&P Global publishes Manufacturing PMI results for December, followed by the equivalent survey from the Institute for Supply Management on Wednesday. The services components of those surveys come out on Thursday and Friday. We’ll also get FOMC Minutes on Wednesday, along with job openings for November, before the most important data arrives to close out the week: ADP employment change estimate on Thursday, and the BLS Labor report on Friday.

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Is it Time to Buy Precious Metals Again?

Metals pushed to the front of the pack in November. Gold and Silver both had their best month since 2020, and Copper prices rose by more than 12%.

At the end of October, it looked as though Gold prices were stuck beneath the low end of their 2020-2021 range and headed back toward their COVID lows. The problem for precious metal bears, though, was that Gold’s decline hadn’t accelerated when those lows were initially broken. Even worse, Silver prices had failed to confirm the breakdown. In fact, while Gold was setting new lows, Silver was setting higher ones. Silver tends to lead while precious metals are rising and lag when metals fall, so it was unusual to see Gold falling while its counterpart was putting in what looked like a healthy base.

Silver looks even better today.

The 2019-2020 highs provided a perfect springboard to launch Silver back above those 2021 lows, and it wouldn’t be surprising to see it retest multi-year highs. For those of you keeping score, that would be 25% higher from here.

Gold is battling near-term resistance at its August highs, and it’s yet to convincingly exceed the 200-day moving average. Still, the chart is in better shape than it was a month ago, and if prices can hang above 1800 for a week or two, there’s no reason it couldn’t join Silver in a retest of the highs.

The fate of metals may rest in the hands of the US Dollar.

Dollar strength has been a headwind for equities and metals for much of the year, as it rose 20% from January through September. With markets increasingly anticipating a slowing in Federal Reserve tightening actions, though, the greenback is giving back some of its gains. On Thursday, the US Dollar Index closed below its 200-day moving average for the first time in well over a year.

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