Steady As She Goes

Considering the presence of multiple jokers in the deck, markets are pretty much dealing the hands we expected.  As Synthetic Systems predicted at the beginning of the year and in the last quarterly update, gold has sold off sharply after an early year rally.  Treasuries have gone down the tubes, registering the worst first four months of the year in memory.  The dollar has rallied as stocks have held steady, producing a bear market in nominal stock prices.

Last week we tipped a likely bear market rally in stocks, which has also come to pass.  This rally could be more than a one day wonder; if it follows the SS script, it could even extend through most of the summer.  But another update is due before that, so we’ll cross that bridge when we get to it.  It’s also important to note that, like the bearish action to date, the current rally reflects a dip in the dollar more than a genuine rally in stock values.  And in general SS interpretation is due more than the usual grain of salt in light of the influence of factors outside the financial system; in particular the China Covid lockdowns and the Russia Ukraine war.  All told, our forecasts have been working out better than expected despite the presence of these extraneous confounding factors.

Copper has taken an unexpected leg down, likely as a consequence of the sharp China slowdown.  On the other hand, bonds appear to have put in an interim bottom, with the ten year yield running into resistance just where we said it would, around 3%.  The yield peak (price low) to date occurred on May 6 at 3.12%.  It pulled back under 3% two sessions later and has remained there since.

The main issue at this point is that this rally in stocks, even if runs for a while, is very unlikely to mark the end of the bear market.  SS sees the grizzly action arriving more towards the end of this year.  And as we’ve noted before, a sustained stock rally would torpedo the Fed’s inflation fight.  So any new bull market blaze in stocks would almost certainly be hosed down by an even more determined Fed.