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

By: Miguel A. Rodriguez

11:03, 24 May 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.



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.



Sources: Bloomberg, Reuters

Share this article

The information presented herein is prepared by and does not intend to constitute Investment Advice. The information herein is provided as a general marketing communication for information purposes only and as such it has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is not subject to any prohibition on dealing ahead of the dissemination of investment research.                                                                                                                            Users/readers should not rely solely on the information presented herewith and should do their own research/analysis by also reading the actual underlying research. The content herewith is generic and does not take into consideration individual personal circumstances, investment experience, or current financial situation.Therefore, Key Way Investments Ltd shall not accept any responsibility for any losses of traders due to the use and the content of the information presented herein. Past performance and forecasts are not reliable indicators of future results.