The stock market can’t catch a break. Good news is bad news, and now bad news is bad news, too.
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It’s a rough time in the U.S. stock market.
Consider the reports on the economy that trickle in nearly every day. On Thursday, the Labor Department reported a decline in initial jobless claims, to an eight-month low of 201,000. That’s pushing claims to near the lowest level of the cycle, defying the Federal Reserve’s attempt to induce a labor-market slowdown to get inflation under control. The result: a sharp 1.6% sell-off in the S&P 500 SPX.
Then on Tuesday, the Conference Board reported a decline in consumer confidence to a four-month low. The result: a sharp 1.5% sell-off in the S&P 500.
So how can it be that both good economic news and bad economic news both spell bad results for the stock market?
Well, it suggests that maybe there’s another force driving market direction, namely the surge in bond yields, which may not really be driven by the data at all.
Deutsche Bank posted this chart comparing the ratio of copper to gold to U.S. 10-year Treasury yields. The previous close relationship has totally broken down.
Their take is the rise in long-term yields is due to large fiscal deficits, aggressive central bank quantitative tightening and central banks ruling out rate cuts.
That doesn’t look like it will end well, and the Deutsche Bank team say it won’t, unless the Fed gets more dovish on rates or pursues a far less aggressive quantitative tightening program.
“If our cycle dating is close to correct, central banks are now actively tightening policy into a late 2000 & 2007 style backdrop,” say credit analysts led by Steve Caprio, head of European and U.S. credit strategy.
If there is some good news, at least there’s support for the S&P 500 at its 200-day average, which on Tuesday was 4,195.
The market
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Control Room Operator and Engineering Student
1 年I think it all depends on an investor's goals and perspective. Great for me because I can buy quality companies at fire sale prices and bad for a 70 year-old trying to retire who's still heavily weighted in stocks.