The rising uncertainty in financial markets undermined stocks despite solid consumer spending. However, gold rose to a new high, while Germany’s DAX and Hong Kong’s Hang Seng Index also enjoyed strong advances.
The two-day rally on the S&P 500 faded, with a lower close warning of another test of support at 5500. A breach of support would confirm the bear market.
The Dow Industrial Average is in a similar position, hesitating below resistance at 42,000. A reversal below the recent low would again confirm the bear market.
The Fed is expected to keep interest rates unchanged at this week’s FOMC meeting. The spread between the 2-year (purple) and fed funds rate (gray) shows the market pricing in an average 40 basis points of rate cuts over the next two years.
Treasury yields remain low, with the 10-year continuing to test support at 4.1%.
However, credit markets are tightening due to rising uncertainty, with high-yield spreads leaping by 160 basis points since the end of January.
Consumers
Consumer spending remained reasonably strong in February. New housing starts (purple) recovered due to lower mortgage rates, while February new housing permits (green) held at similar levels.
Thirty-year mortgage rates have eased to 6.65%, in line with softer 10-year Treasury yields.
Light vehicle sales similarly recovered to nearly 16 million annual units in February.
Dollar & Gold
The Dollar Index continues to test support at 103. Breach would offer a target of 100.
Gold is among the few beneficiaries of the weak dollar and rising uncertainty, advancing to a new high of $3,033 per ounce.
Australia
The Australian ASX 200 index found short-term support at 7700, but the rally soon faded. A breach of 7700 would confirm the bear market.
The Financials Index displays a dead cat bounce at 8000. Breach of support would further strengthen the bear signal.
Germany
Germany’s DAX is another beneficiary of the uncertainty, threatening a breakout above 23,500 after Germany’s parliament voted in favor of a 500 billion euro fund for infrastructure and easing strict borrowing rules to allow for increased defense spending.
Hong Kong
Hong Kong’s Hang Seng Index also displays a strong advance.
Conclusion
Consumer spending remains robust, but financial markets face rising uncertainty. Widening credit spreads warn of a likely contraction in new investment.
The Dow and S&P 500 rally is fading, and reversal below recent support levels would confirm a bear market.
Australia’s ASX 200 index displays a similar pattern and breach of support at 8000 on the ASX 200 Financials Index would confirm the bear market.
Gold rose to a new high of $3,033 per ounce, while the current turmoil also boosted Germany’s DAX and Hong Kong’s Hang Seng Index.
Acknowledgments
- Federal Reserve of St Louis: FRED Data
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.