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Although posting respectable gains last Friday, U.S. equity markets lost ground last week, snapping a five-week record of weekly advances.
The Dow Jones Industrial Average gave up 0.6 percent, NASDAQ 0.7 percent, and the Standard & Poor’s 500 0.3 percent for the week, although all three markets closed on Friday near their highs for the day.
Share prices stalled after the U.S. labor department reported October’s inflation rate accelerated to 6.2 percent, its worst in 31 years, and had spread more widely into the U.S. economy.
And the “worry” on The Street is that with a worker shortage already in place and inflation rising faster than projected, workers will demand higher wages which in turn will keep pushing up inflation. Thus, the higher inflation rises the greater the fear the Federal Reserve will raise interest rates which will in turn down the spigot of cheap money that has pushed up equities and the housing market to all time highs.
In fact, the word “inflation” was spoken in third-quarter earnings calls of 285 companies, more than in any quarter since at least 2010, data service FactSet reported.
Also, government data released Friday showed the economy has had more than 10 million jobs open since June, with a record 3 percent of all workers—about 4.4 million—quitting their jobs in September.
The job vacancies drag on the economic recovery and push up prices, as there are too few workers to produce enough goods and services to meet the increasing product demand.
Fueled by the cheap money flows and actual negative interest rates when accounting for inflation, this fall’s stock rally gave the S&P 500 its longest run of record highs since 1997.
When will the money flow begin to dry up?
According to the CME Group, the federal funds futures market reflects a 70 percent probability that the Fed will raise interest rates by June. During the first week of November it was at a 50 percent probability that rates would increase by then.
The yield on the benchmark 10-year treasury note climbed to 1.618 percent on 15 November, up from 1.497 percent a week before, one of the largest one-week yield gains in almost a month.
Yields rise as bond prices fall.
The two-year Treasury note’s yield, which tends to be more sensitive to hints of rate increases, rose to 0.522 percent last week to notch its best one-week yield gain since October 2019, according to The Wall Street Journal.
Yet, despite soaring inflation and a wobbly economic recovery, U.S. equity market optimism still reigns… at home and abroad.
Overseas, the pan-European Stoxx Europe 600 added 0.3 percent on Friday and gained an additional 1.68 percent on 15 November.
Despite the world’s third largest economy, Japan, seeing its economy shrink by an annualized rate of 3 percent, its Nikkei added 1.1 percent, the Hong Kong Hang Seng index moved up 0.3 percent, and the Shanghai Composite edged up 0.2 percent to close last week.
Keeps on Going
Yesterday, all the indexes slipped a bit but today they bounced back. Despite the University of Michigan’s index released Friday showing a sharp drop in consumer sentiment which fell to a 10-year low, Americans are still spending a lot of money. With consumption comprising some two-thirds of U.S. Gross Domestic Product, markets moved higher today on the Department of Commerce report that showed retail sales rose by 1.7% in October compared to September. However, the number was not adjusted for inflation. Therefore, less was possibly bought, but what was purchased cost more.
And regardless of “supply chain disruptions” industrial production—which The Street predicted would rise 1 percent—rose 1.6% in October… which was a sharp rebound from its 1.3 percent September decline.
Capacity utilization rose to 76.4 percent, its highest level since December 2019.
With the Bigs getting bigger, and competition shrinking, the mega chains that destroyed the small businesses keep seeing their sales numbers and profits rising.
Walmart’s fiscal third-quarter earnings topped analysts’ expectations and Home Depot’s same-store sales spiked 6.1 percent… beating estimates of a 2.2 percent rise.
TREND FORECAST: Yes, with the holiday shopping season ratcheting up, so too will retail sales. However, as more vax mandates and other restrictions are imposed, other sectors, such as hospitality, trade shows, conventions, concerts, etc. will decline. For example, U.S. data released today shows food service and drinking places sales were flat last month, and clothing and clothing accessory store sales fell 0.7 percent.
And while wages have increased, adjusting for inflation, hourly earnings in October were down 1.2 percent. It shows. According to a Deloitte survey, 11 percent of Americans won’t be buying Christmas gifts, which is the sharpest drop in 10 years and double the 2020 number.
Also, a Wells Fargo survey found that the top 10 percent of Americans make up nearly half of all personal outlays.
TREND FORECAST: Markets have ignored fundamental economic realities for more than a year.
As we continue to note, Wall Street gamblers will stay at the table as long as they can see any chance of squeezing out a few more record highs before the Fed closes the game by raising interest rates… which they will put off as long as they can. And again, considering the inflation rate, real interest rates are about negative 5.3 percent.
When markets believe the Fed will raise interest rates soon, investors will sell off sharply to beat the rush to the exits, triggering a dramatic market reversal.
Today
On the better than expected economic news, the Dow, after climbing some 200 points during the day, closed up 55.77 points, while the S&P 500 and Nasdaq moved up 0.39 percent and 0.76 percent respectively.
And while the major averages have been flat over the past several days, the Dow is down less than 1.5 percent of its all-time high while the S&P and Nasdaq are just 1 percent off their record highs.
As we keep saying, as long as the cheap money flow continues, equities in the U.S. will keep rising. In fact, as Gregory Mannarino writes in this week’s Trends Journal:
“… the U.S. stock market maintains its record run higher as the easy money continues to pour into it courtesy of the central bank. The Federal Reserve, which is the sole driving force behind the stock market’s record run, is not only buying record amounts of treasuries and mortgage-backed securities—but they are also buying stocks as well. Moreover, the Federal Reserve is involved in an even bigger scheme, MUCH BIGGER.”
What is the MUCH BIGGER scheme? Read Mr. Mannarino’s article, “DOLLARIZING THE WORLD.’ A SLAVE SYSTEM.”
GOLD/SILVER: Gold was up nearly 2 percent from last week. But profit taking and a strong dollar drove prices of both gold and silver down today.
After gold hit a five month high and silver hit a three month high overnight, both closed down today with gold falling $14.80 to close at $1,851 per ounce while silver fell 23 cents to close at $24.87 per ounce.
TREND FORECAST: We maintain our forecast for precious metal prices to rise as investors seek safe-haven assets to counter rising inflation. Again, we also maintain our forecast that precious metals will decline as interest rates go higher and the dollar gets stronger. However, the economy cannot run without cheap money. Thus, as a result of the cheap money drying up when interest rates go up, the economy and equity markets will sharply decline… which will in turn strongly drive up precious metals and cryptocurrency prices.
BITCOIN: Bitcoin is down some $8,000 from last week. And while bitcoin took a hard hit yesterday falling 9 percent and then moving back up to drop some 6 percent, it is still trading in the strong $60K per coin range.
Part of the decline was attributed to the National Development and Reform Commission of China (NDRC), whose spokesman said during a press conference today that bitcoin mining “causes large energy consumption and carbon emission. It has no active impact to lead industry development or scientific progress.” According to a CNBC translation, Meng Wei, the NDRC spokesperson went to on to say that “Regulating cryptocurrency mining activities has significant meaning in optimizing our industrial structure, saving energy and cutting emission, achieving carbon emission and neutrality goals.”
TREND FORECAST: As evidenced by the Chinese actions that were ostensibly the cause of the bitcoin dive, 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 is lessening 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.)
OIL: In another economic universe—contrary to the one where retail sales in the U.S. are going up as overall economic conditions weaken—today oil prices stayed near their recent lows as a result of economic realities: While increases in global oil production will add more supply, what is also dragging oil prices down is less demand. Fear is spreading that COVID cases are rising and nations will impose tough draconian COVID lockdown/Vax passport mandates which in turn will push down economies.
Thus, there will be more supply of oil than demand which will, if these mandates grow more stringent, keep prices in their current range. Both down some $4 since last week, today, Brent Crude was up 47 cents to close at $82.52 per barrel while West Texas Intermediate fell 10 cents to close at $80.78 per barrel.