Key Points
- The Dow jumped 1.7% to a new high above 51500, outstripping the S&P 500, which gained 0.4%.
- The Russell 1000 shows a shift from Growth to Value.
- Bitcoin is testing primary support at 62000, signaling a market shift to risk-off.
The Dow jumped 1.7% to a new high above 51500, boosted by a strong shift to value stocks in the blue-chip index. Rising Trend Index troughs confirm buying pressure.
The S&P 500 lagged, with a 0.4% gain, though it remains in a strong uptrend.
The recent rally in Growth stocks (IWF) relative to Value stocks (IWD) in the Russell 1000 threatens to reverse with a break of the rising trendline.
A shift from Growth to Value would reinforce the Bitcoin1 risk-off signal below. A breach of primary support at 62,000 would signal another decline, reflecting market attempts to shed risk assets.
The war with Iran has also upended the Treasury market, with the 2-year Treasury yield jumping above 3.6% at the beginning of March, ending the primary downtrend. The reversal signals no more rate cuts, with the rally now exceeding the Fed funds target range of 3.5% to 3.75% as expectations for rate hikes grow.
The economy is at full employment, with job openings exceeding unemployment for the first time in 12 months.
Inflation is rising, with CPI likely to follow Brent crude higher.
It would be unreasonable to expect the new Fed Chair to push for rate hikes at his first meeting, but we are likely to see a switch to a tightening bias.
Conclusion
The Dow is gaining on the S&P 500 as financial markets shift to a risk-off stance.
Kevin Warsh will chair his first FOMC meeting on June 16-17. 2-year Treasury yields indicate the bond market does not expect further rate cuts. The FOMC will likely switch to a tightening bias to calm market fears of rising inflation.
Acknowledgments
Notes
- Cryptocurrencies are the highest-risk asset class, and we analyze Bitcoin (BTC) solely to identify risk sentiment in financial markets. Our analysis is not a recommendation to buy or sell BTC, nor is it a commentary on the merits of cryptocurrency.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.