The Morning Call: Can It Continue?
U.S. equity markets were higher again yesterday led by the tech heavy Nasdaq surging 1.9%. No significant news influenced the move as investors are still digesting the war in Ukraine, inflation concerns, and monetary policy. All eyes are on the FOMC Meeting Minutes dropping tomorrow for any clues on balance sheet reduction and rate hikes. Consensus is for a 50 bp hike next meeting with the chances increasing for another 50 bps the meeting after.
The VIX has slipped under 20. Treasury yields are higher with the 10-year ~2.47%. Theres’s inversions everywhere on the long-end of the curve. This is the biggest threat to equity markets that bears are pointing to along with geopolitical risks. The bull case is that stocks will continue their recovery with support from growing GDP and corporate profits.
The recovery has been impressive. The Dow and S&P 500 have gone from over 10% off all-time highs to around 5%. The Nasdaq from over 20% off all-time highs to around 10%. All with strong support from the 20-day EMA. Encouraging, but can it continue? The former high flyers that went down 85-90% are rebounding with a vengeance. And why not? Stocks often recover half of the decline. In this case that’s a long way. A tradeable rally. However, we expect high volatility all the way through the Q2. Stay close to shore.
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