1/ Big Tech’s Friday Hope
2/ Deindustrialization
3/ Junk Less Wanted
4/ A Silver Lining
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1/ Big Tech’s Friday Hope
Fed days are similar to an earnings report for the general market. Much like an earnings miss can send a stock plummeting, a sour outlook by Federal Reserve officials can kick-start downside momentum for the general market. Earlier this week, we looked at the QQQ and discussed how it was “living on the edge.” The Fed’s hawkish 2024 forecast has hurled the QQQ off the edge, and Big Tech bulls must hope for a sizable Friday upside reversal; otherwise, it will be a clear break of the uptrend line that has defined this 2023 uptrend.
2/ Deindustrialization
The 2023 rally brought the Dow Jones Industrial Average within only 3.5% from all-time highs – an impressive feat compared to smaller cap securities. Although the Dow has been a place of safety, it seems Powell’s battle with inflation is having collateral damage, leading to a breakdown in industrials.
Like the QQQ, the Dow needs a sizable Friday reversal to stave off its decisive break of the 2023 uptrend line.
3/ Junk Less Wanted
The market is a fascinating place where even “junk” bonds, in the right circumstance, can often be an excellent security to own. Similar to the QQQ, we looked at high-yield or “Junk” debt earlier this week. For day-to-day analysis, the JNK ETF gives a great picture of developments in the space.
A stable and rising JNK has been a bullish alternative to the weaker government-linked TLT bond ETF. The unusual strength in JNK has been due to subdued corporate risk despite generally rising yields. Like the QQQ and Dow, JNK threatens to break its uptrendline. This trendline break would have far-reaching implications that would mean lower valuations for more speculative securities and higher financing costs for companies. It would signal that the “monetary lag” has finally arrived and is significantly impacting the real economy.
4/ A Silver Lining
Inflation should be bullish for precious metals, gold, and silver. However, a historically rapid tightening by the Fed to prevent the anchoring of high inflation expectations has stalled any significant upside moves in either metal. Silver remained stubbornly strong despite today’s risk-off market moves and climbing bond yields.
Sitting within a nearly three-year consolidation, an upside breakout by the metal will signal that silver’s delayed bull market has finally commenced and that rates have peaked for this inflationary cycle.
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Originally posted 22d September 2023
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