The June rate hike is back on the table, but something is changing. The market is defying all oddsand rallying despite rising bond yields and a strong dollar.
June Hike back on the table
The market is now pricing a greater chance of a June Hike than a June pause. This was a massive change in a short period. And still, the market is pushing higher. Something has changed..defying all odds
Macro Forces
Typically, when bond yields and the dollar rise, the market corrects. However, this time, Nasdaq is ripping through prior resistance, and the S&P is retesting the 4,200 breakout level...Something has changed...Defying all odds
Tech doesn't care about another hike
Tech had the sharpest SELL OFF. Why wouldn't it have the steepest RALLY?
Economic Activity
The economy is still slowing down, but not as severe as some economists had feared. Some sectors of the economy are recovering, and there are no signs of a collapse.
Business ActivityThelatest release of the S&P global Manufacturing PMI, Services PMI, and Composite PMIsuggests that the economy is still growing but at a slower pace than in recent months. The slowdown in the manufacturing sector is being offset by strong growth in the services sector.
InflationInflation came in hotter than expected and remains sticky in the core areas. However, the Fed's preferred inflation gauge is below the Fed Funds rate (restrictive territory) and trending lower.
JobsThe recent rise in jobless claims slowed, suggesting the economy is not spiraling into panic mode.
ConsumerThe consumer remains strong.
HousingHousing activity looks to have bottomed. No signs of collapse.
Closing Thoughts
There are a few reasons why the market may be defying the odds. First, inflation is still relatively tame, the trend is lower. Second, earnings growth is recovering for Mega Caps. Third, the Federal Reserve is signaling that it will be patient with rate hikes. Of course, it is still too early to say whether the market will continue to rally. However, the current trend in AI is certainly worth paying attention to as it may drive the market much higher than the consensus believes. If the market can continue to defy the odds and rally, it could TRIGGER THE SHORT SQUEEZE.
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