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EQUITIES CONTINUE DESCENT INTO 2022
Remember the Santa Clause Rally?
Forget about it. On the stock market front, it has not been a Happy New Year.
U.S. equity markets sank last week, with the Dow Jones Industrial Average and Standard & Poor’s 500 posting their second straight week of losses, the NASDAQ its third.
Investors continued to sell bonds, pushing rates higher for the fourth consecutive week and posting yields’ best four-week gain since last March.
The Street continues to ponder the impact of the U.S. Federal Reserve’s accelerated plan to end bond purchases and boost interest rates amid the Omicron surge.
Despite data proving Omicron is less deadly and its symptoms more mild than the coronavirus and Delta variant—and that it has peaked in South Africa where it first appeared—COVID Hysteria is still the major headline news.
Therefore, with fear winning out over fact, as we have detailed in this and other Trends Journal’s, Omicron is killing more businesses and livelihoods worldwide than it is killing people.
Industrial stocks stemmed their slide after Fed chair Jerome Powell—the idiot or liar who said a year ago that inflation was only “temporary”—now declared inflation likely will throttle back by mid-year and that interest rates, though rising, will remain low.
However, news released on 12 January that inflation ran at 7 percent in December sent stocks south the next day, led by the tech-laden NASDAQ’s 2.5-percent stumble.
A late-session buying rush on Friday carried the NASDAQ and S&P into positive territory for the day, adding 0.6 percent and 0.1 percent, respectively, but the Dow sank 0.6 percent.
Still, the NASDAQ and S&P ended the week down 0.3 percent, with the Dow closing off 0.9 percent.
Feeling the higher interest pain, some 220 U.S. listed companies with market capitalizations above 10 billion have sunk into bear territory, down at least 20 percent from their 2021 highs.
As reported in The Wall Street Journal, according to Jason Goepfert at Sundial Capital Research, nearly 40 percent of stocks in the Nasdaq index are down some 50 percent from their highs.
He said that not since the 1999 dot-com bubble have so many Nasdaq fallen that far while the index was this close to its high.
Will equities continue their dive? Different strokes for different folks. Read Gregory Mannarino’s article: “MARKETS: EXPECT THE UNEXPECTED, AND MORE.”
TREND FORECAST: We maintain our forecast that the COVID War is likely to peak late March, mid-April. However, higher interest rates and inflation are likely to offset any relief investors feel as the Omicron variant fades.
Markets Today
Overseas, it was gloomy Tuesday on the equity front with the Asia-Pacific major indexes closing down. However, with consumer sales and real estate slumping, in an attempt to boost its economy, the People’s Bank of China cut the borrowing costs of its medium-term loans yesterday, for the first time since April 2020… which helped push up Chinese mainland equities.
Over in Europe, fearing central bank rate hikes and spiking oil prices as a result of increased Middle East tensions, the pan-European Stoxx 600 ended the day down 1 percent with tech stocks dropping 2.2 percent.
Closed yesterday in honor of Martin Luther King Day, in the U.S., equities continued their losing streak. The Dow was down over 600 points as bond yields continued to rise.
On the bond front, with expectations that the Fed will quickly raise short term rates, the 2-year yield broke above 1 percent for the first time since February 2020, which was the onset of the COVID War.
The benchmark 10-year note climbed to 1.86 percent, its highest since January 2020, the month before the COVID War was officially launched.
There was more bad banking news, as Goldman Sachs stock slumped some 8 percent after failing to meet equities analyst’s expectations.
The Dow ended the day down 543 points, the S&P 500 fell 1.84 percent.
And with interest rates set to rise and the cheap money starting to dry up, the tech-heavy Nasdaq closed down 2.60 percent. Higher interest rates typically hurt growth stocks which rely on low rates to borrow money on the premise that it will lead to their promises of advanced innovation.
How far will the tech stocks fall? See, “TECH STOCKS’ ROUT CONTINUES” and “RISE IN REAL BOND YIELDS TANKS TECH STOCKS” in this Trends Journal.
GOLD/SILVER: With Treasury yields rising and the dollar getting stronger, gold slipped 0.13 percent today, closing at $1.814 per ounce. As interest rates rise and the dollar value appreciates, gold prices decline since interest rate hikes push-up government bond yields which raises the opportunity cost of holding non-yielding gold and silver. Gold does not yield interest, so investors switch to interest-bearing assets, such as treasuries.
Running opposite to gold, silver, which has been in a slump, hit a seven-week high as market players believe it has been down too low for too long. Silver closed up 2.63 percent to close at $23.52 per ounce.
TREND FORECAST: Should interest rates radically rise, it will crash the greatly overvalued equity markets, which have been artificially propped up with cheap money. And when Wall Street crashes, Main Street will crash with it. Thus, there will be strong demand for safe-haven gold and silver assets.
Moreover, we suspect that the Fed—which has its former chair Janet Yellen now playing the role of U.S. Treasury Secretary—will raise interest rates strongly to bring down inflation.
In doing so, it will send the nation deep into recession. Therefore, despite the higher interest rates, there will be strong demand for safe-haven assets during a period of economic gloom.
Then, in anticipation of the 2024 presidential race, they will dramatically lower interest rates to pump up the economy prior to Election Day. Remember, the major interest of the general public is the bottom line: “It’s the economy, stupid.”
OIL: As Trends Journal subscribers well know, we have been long warning that Middle East military tensions would be a wild card that will drive up oil prices despite diminishing demand and over supply.
Today, Brent Crude, up 2.43 percent and closing at 88.63 per barrel, hit a seven year high following the Houthi attack on United Arab Emirates capital Abu Dhabi on Monday.
Yemen’s Houthis claimed responsibility for the attack, which resulted in three petroleum tanker explosions near state oil firm ADNOC’s storage facilities.
As we have continually noted, the higher oil prices equal higher inflation… and a heavier debt burden on businesses and consumers.
And, with interest rates rising and the debt loads getting heavier, plus inflation increasing the cost of living and running business, defaults will escalate.
Furthermore, should military conflict erupt in the Middle East and oil prices spike to above $100 per barrel, it will crash equity markets and the global economy.
TRENDPOST: In response to the attack, UAE’s Ministry of Foreign Affairs said “We condemn the Houthi militia’s targeting of civilian areas and facilities on UAE soil today. We reiterate that those responsible for this unlawful targeting of our country will be held accountable.”
Totally absent from the mainstream coverage of this occurrence that killed three people in the UAE, is the Yemen War, of which the UAE has been fighting along with its ally Saudi Arabia.
Officially launched from Washington, D.C. in March of 2015 from the Saudi Embassy with the blessing and support of America’s Noble Piece of Crap Prize Winner Barack Obama, according to the United Nations, the people of Yemen are suffering the worst humanitarian crisis on earth.
But of course, when big countries slaughter hundreds of thousands in small countries, as have the UAE and Saudi Arabia—and those in Yemen whose nation has been destroyed retaliate—they are called “terrorist” acts.
The Trends Journal has been covering the Yemen War since the onset. But while the mainstream media rants about celebrities dying, getting divorced or getting COVID, the Yemen War, who started it and why is barely reported.
Here are just a few of our past Yemen War articles:
BITCOIN: Nothing of significance has changed on the bitcoin front from last week. Even the mainstream media message is the same, with the CNBC headline again blaring that bitcoin briefly tumbled below $40,000.
Last Tuesday it was trading at $42,747 per coin, when we went to press, today it’s at $41,680 as we go to press.
TREND FORECAST: We maintain our forecast that it will be a rocky road ahead. As with precious metals, as the Fed raises interest rates, safe haven assets which pay no dividends, will decline in price as investor’s park money in interest-bearing accounts… where they can keep their money safe and earn interest.
However, we maintain our GSB—Gold, Silver, Bitcoin—forecast that all three will maintain and then pass their current and previous highs after the U.S. Fed rate hits 1.5 percent, equity markets sharply fall and the economies sink into Dragflation: Declining Gross Domestic Product and rising inflation.
And, should military actions escalate in the Middle East, bitcoin will be among the safe-haven assets investors in affected nations will seek that will be out of the hands of governments that impose “at war” financial restriction mandates.
We also maintain that a major factor in forecasting the future price of bitcoin and other crypto currencies is dependent upon government regulations.
However, that threat in the U.S. and Europe will lessen as more banks, businesses and investment funds are going crypto, thus, the upward crypto trends, especially bitcoin, will continue to gain momentum.
(For more on bitcoin and other cryptocurrencies, please see our “TRENDS IN CRYPTOS” section.)