US stocks appear to be on a permanent rollercoaster ride as investors debate continued signs of a strong economy alongside rising rates, which remains a drag on higher valuation companies. For Wall Street to remain fully confident in piling back into stocks, inflation needs to be showing signs it is easing and that is not happening yet.
Market conditions look dangerous but some of these discounts are looking very attractive. It seems that the base case is still that the inflation peak is in place and that the Fed will look to signal a gradual tightening path. Unless inflation shocks prove otherwise, the risk-reward ratios for some of the beloved mega-cap tech stocks are looking attractive. It won’t happen immediately, but when the economy starts to show signs of weakness, that will give investors the green light to buy stocks.
Investors just can’t confidently buy stocks as too much uncertainty persists with what will happen with global growth and how far the Fed will take tightening beyond the summer.
The US labor market remains strong as broadbased hiring continues. The economy added 428,000 in April, much more than the analysts estimate of 380,000, also matching the slight downward revision in the prior month. Wage pressures might be showing signs of easing as average hourly earnings ticked lower. Still most signs suggest the labor market is tight and that wage pressures are not quite ready to post a meaningful drop.
The labor market remains robust and that should keep the Fed’s half-point tightening on cruise control until the Jackson Hole Symposium.
Crude prices just want to head higher as energy traders completely fixate over the looming European sanctions on Russian oil. No one wants to be on the wrong side of a major crude supply disruption headline, so whatever oil price dips that happen will be short-lived.
US oil rig counts continue to rise, but that has not led to increased production. The weekly Baker Hughes report showed oil rig counts rose by 5 to 557 rigs.
Gold prices are still licking their wounds following the bond market selloff. Eventually investors will need additional safe-havens, so gold might start to attract some flows if the dollar softens as the global bond market selloff extends. The dollar is slightly softer today, but that doesn’t mean it is ready to lose its crown. Gold could still remain vulnerable to further downward pressure if inflation does not show further signs of peaking next.
Gold is trending right between the 50- and -200 day simple moving averages but still looks like it isn’t quite ready to rally. Next week will be pivotal for inflation expectations and for Fed speak that could confirm their commitment to tightening by half a point per meeting until the Jackson Hole Symposium.
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