Article Hero

The American stock indices seem to be reluctant to enter a bear market

1653376696.png
Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
Indices rose sharply after six consecutive weeks of declines and after almost a week of threatening to "officially" enter the bear market

The increases were led by major technology companies such as Apple and Microsoft, stocks that have suffered heavy losses throughout this year. They are no longer in the overvalued zone, along with the shares of oil companies and banks.

Despite this encouraging start to the week, the most widespread opinions in the market are still not very optimistic. The idea that the Federal Reserve could save the market if the losses continue, through the so-called "Fed put,” backing off its intention to raise interest rates aggressively, seems not credible given the high inflation level. Although it may happen if the economy shows signs of deep weakness in the coming months and inflation shows no signs of getting worse. This could mean that the Fed does not need to reach the interest rate levels that the market is already pricing.

 

Treasury bond yields partly reflect this possibility after retreating from multi-year highs of 3.20% in the ten years bond more than 30 bps.

 

Currency 

As is usually more common in the foreign exchange market, this possibility is anticipated more directly. The US Dollar continues to lose ground due to the drop-in market interest rates. EUR/USD hit another one-month high yesterday at 1.0690 and is technically paving the way for further advances towards levels near 1.0800. In this case, Lagarde's statement announcing rate hikes for July has contributed to the strength of the single currency and surprisingly good data from the German IFO, which, for the moment, shows no signs of weakness in the German economy. 

 

One asset that benefits from the weakness of the US Dollar is gold. The yellow metal is inversely correlated with the Dollar and is being pushed higher this time than by inflation expectations, as was the case in the first two months of this year.

 

Technically, gold is at an intermediate resistance zone at $1856/ounce, which, if broken above, would put it on track for the next upside target of around $1900 per ounce.

Interfaz de usuario gráfica, GráficoDescripción generada automáticamente

 

 

Sources: Bloomberg, Reuters

This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.The research analyst in not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation, or particular financial needs before making a commitment to invest. The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided. 

Share this article

How did you find this article?

Awful
Ok
Great
Awesome

Read More

Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.