S&P 500 SET ANOTHER RECORD
The Standard & Poor’s 500 stock index closed at 4,247.44 on 11 June, ending its third consecutive week of gains with a new record high.
The Dow Jones Industrial Average added less than 0.1 percent, edging down slightly for the week; the NASDAQ grew 0.4 percent.
The Stoxx Europe 600 rose 0.7 percent on the day, also setting a new record.
As we have noted, trading volume was muted as gamblers worry that the prospect of further market advances will dim as the risks of inflation rises.
Bond prices also ticked up, with yields on 10-year treasury bonds slipping below 1.5 percent. Yields fall when bond prices rise.
The simultaneous rallies in stocks and bonds is stoking fears of a sudden reversal in both. The correlation between the iShares 20+ Year Treasury Bond Exchange-Traded Fund and the NASDAQ 100 index is at a 15-year maximum, according to JPMorgan Chase as reported in The Wall Street Journal, which could signal a downturn in both markets.
Yesterday the Dow lost some 85 points while the S&P 500 and Nasdaq both closed at record highs.
Today the markets dipped a bit as gamblers await word on the Fed’s two-day policy meeting which started today. The Street is concerned that if inflation keeps rising the central bank will raise interest rates and cut back on its $120 billion per month bond buying scheme.
But while there are worrying expectations of cutbacks by the Fed on the market front, as Gregory Mannarino points out in his article this week, “CENTRAL BANKS ARE ABOUT TO SHOCK THE MARKET”, “If you were to follow any of the mainstream media financial news outlets, the narrative is this: ‘The Fed is going to be cutting back on asset purchases.’
How About No.”
On the inflation front, producer prices surged 6.6 percent…reportedly the highest 12-month rise in the final demand index since the Bureau of Labor Statistics began tracking the data in November 2010.
As CNBC reported today:
Goods inflation continued to be the dominant inflation force, rising 1.5% as opposed to a 0.6% increase in services. In the pandemic economy, goods have run well ahead of services as economic lockdowns constrained consumer demand for services-related purchases.
Excluding food and energy, the 12-month final demand PPI rose 5.3%, which also was the biggest increase since the BLS started tracking that number in August 2014.
Substantial price increases at the producer end came from nonferrous metals, which jumped 6.9% for the month. Prices of grains also surged, rising 25.7%, while oilseeds increased 19.5% and beef and veal rose 10.5%. Fresh fruits and melons fell 1.9%, while basic organic chemicals and asphalt also declined.
Though services continued to be a lower contributor to overall producer price pressures, the index rose for the fifth straight month.
And beyond goods and services, according to CoreLogic, single-family home rents had their highest spike in 15 years jumping up 5.3 percent year over year in April, compared to 2.4 percent year-over-year increase in April 2020.
We note this to reinforce our forecast for a continuation of rising inflation. And we are not alone. Just yesterday, CNBC reported that the CEO of JP Morgan Chase said the bank is hoarding cash because there is a “very good chance” inflation is not temporary and is here to stay.
Billionaire hedge fund manager, Paul Tudor Jones, told the network yesterday he is betting on gold, cryptocurrencies and commodities because if the Fed keeps rates low and ignores the inflationary spike he thinks, “it’s just a green light to bet heavily on every inflation trade.”
However, on the consumer front, retail sales fell 1.3 percent in May, which brings concern that the higher and faster inflation rises, the less products consumers will buy. Despite the drop, Bank of America CEO Brian Moynihan said Monday, Americans are spending more and will continue to do so as the economy opens up further.
Indeed, just today, New York State, with a 70 percent jab rate for one COVID shot, lifted most COVID restrictions ‘effective immediately,’ and Maryland said they will lift them on 1 July. And as we had forecast, this is a push by governments to get businesses back in business as tax revenues decline from the COVID War lockdowns.
Citi reportedly told CNBC that transaction volumes on customers’ credit and debit cards and over the Zelle payment network have grown by 20 percent so far in 2021 compared to this point in 2019.
GOLD: With the producer price pushing 6.6 percent, year-on-year, and greater expectations that the Feds will tighten monetary policy, gold and silver prices continued their slide, closing down .46 percent and .85 percent respectively.
However, as we have continued to note, the higher inflation rises, the stronger the sentiment to invest in safe-haven hard-asset gold and silver as hedges against inflation. Thus, we maintain our forecast for gold to move toward $2,100 per ounce and silver to trade in the $50 per ounce range by year’s end.
Also, with money pouring back into the cryptocurrency markets, less is being bet on precious metals.
BITCOIN: After plunging some 50 percent from its high in recent weeks, Bitcoin climbed above $40,000 on Monday, after Elon Musk – who helped drive the price down when he said said that Tesla would not accept bitcoin due to concerns over high energy use to make cryptocurrencies which would negatively affect climate change – tweeted that Tesla would allow bitcoin transactions “when there’s confirmation of reasonable (50%) clean energy usage by miners with a positive future trend.”
The tweet spiked BTC up some 6 percent.
As we have been detailing over the past two months – from governments such as China calling for crackdowns on crypto mining to central Banksters warning that cryptocurrencies were great for money laundering schemes –the harder governments crack down on crypto’s, the lower the prices will fall. (See our 25 May “CRYPTOCURRENCY: SPECIAL REPORT.”)
We maintain our forecast that should Bitcoin, which is now down some 50 percent from its recent high and up 9 percent this year, fall to around $25,000 per coin, it will continue to rapidly decelerate.
OIL: Oil prices rose for the fourth consecutive day, with Brent Crude hitting $74 a barrel, its highest price in 32 months. This week oil prices were pushed higher as demand continues to increase and return of Iranian oil into the markets as a result of a new nuclear deal with the U.S. is not seen as coming soon.
And as we have continually noted, the higher oil prices rise, the higher inflation rises. And the higher inflation rises, the greater the odds of the Federal Reserve raising interest rates. And the higher interest rates rise the deeper equity markets and the economy will fall.