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Commentary: Paul Ebeling on Wall Street

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$DIA $SPY $QQQ $RUTX $SOX $BTC $ETH $VXX

“Again, Risk & Rotation are on!” — Paul Ebeling

The price of Bitcoin climbed above $40,000 Monday, a gain of 13% in 24 hrs after Elon Musk Tweeted Tesla’s support.

What’s happening this week

Investors will be focused on the Fed’s monetary policy meeting this wk as the “Goldilocks” market environment that has helped lift stocks to record highs and tamed a bond selloff is tested by rising inflation.

Stocks have climbed steadily in recent wks and now at fresh records, extending a rally that has seen the S&P 500 gain 13% this yr and nearly 90% from its March 2020 low.

US T-Bonds have also rallied after their Q-1 selloff, with the benchmark 10-yr Treasury yield recently at 1.46%, some 30 bpts below its Q-1 highs.

Some of those gainers have been predicated on the Fed’s assurances that rising inflation will not last long enough to warrant a sooner-than-expected end to easy-money policies.

Signals that the Fed is growing less confident in those assumptions could unsettle stocks, which have benefited from QE, and hurt bonds, as rising prices erode the value of longer-dated debt.

Investors are going to be looking for signs that the Fed might believe that inflation is more permanent, we will know more Wednesday afternoon.

Notably, Bullish sentiment among individual investors has been above its historical average of 38% for 25 of the last 30 wks, according to the American Association of Individual Investors. Bearish sentiment is below its historical average of 30.5% for the 18th wk running.

What happened last week

Smoking hot consumer price data driving stock North

The S&P 500 marked a new high

With the surge in the Consumer Price Index (CPI), the stock action was solid.

The rising CPI was apparently not a problem. This Northside came even with May consumer prices spiking above expectations on both the overall and the core.

Y-Y levels hit 5%, a high since August 2008 and 3.8%, a high since January 1992.

Used car prices continued to surge, a 7.3% gainer on Top of a 10% gainer in April, making up a large part of the CPI gain.

The problem is in owners’ equivalent rents, which make up 40% of the overall CPI. That is a critical pricing level for consumers, and it is eating up more and more of many people’s incomes.

The Technicals

HeffX-LTN’s overall technical outlook for the benchmark US stock indexes is Bllish with a Very Bullish bias in here.

What to expect this week

Heading into the June FOMC meeting, a number of Fed officials suggested it may be time to at least begin discussing tapering. 

Federal Reserve Bank of Cleveland President Loretta Mester, Philadelphia Fed President Patrick Harker, and San Francisco Fed President Mary Daly have been among those saying the Fed could at least begin “talking about talking about” tapering, given signs of renewed economic activity. 

Others including Federal Reserve Bank of St. Louis President James Bullard, however, have held firm that the economy was “not quite there yet” to warrant serious discussions of policy changes.

Chairman Powell, for his part, has made clear that Fed will telegraph their intent to taper before actually beginning the process. 

Recent data have suggested the US economy is inching toward the thresholds necessary to prompt the Fed to begin tapering, albeit with some distance still to go before triggering such a move. 

Have a healthy week, Keep the Faith!

Paul Ebeling
Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he is the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.   

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