Key Points
- Gold recovered above $4,100 per ounce, signaling another test of $4,400.
- Silver similarly recovered above $50 per ounce.
- Bitcoin at 106K indicates improving liquidity.
- The S&P 500 also completed a bear trap, indicating another rally.
- A recent Stanford study suggests that the adoption of generative AI has had a minimal impact on employment levels.
Gold recovered above $4,100 per ounce, completing a bear trap with a target of $4,400.
Silver similarly recovered above $50 per ounce, offering a target of $54.
Bitcoin, our real-time indicator of financial market liquidity, rallied to 106K. Respect of long-term support at 100K offers a target of 116K, indicating the liquidity squeeze is fading.
The S&P 500 completed a similar bear trap at 6750, suggesting a rally to test 7000. Follow-through above 6900 would confirm.
41 AI-related stocks dominate the market capitalization of the S&P 500. Investors have gone all-in on AI and its ability to generate future earnings.
Jonathan Levin argues in Bloomberg that, excluding the AI-related Tesla and Amazon, consumer-facing sectors of the S&P 500 are in recession.
A recent Stanford study on ChatGPT adoption indicates significant increases in productivity in fields with high adoption rates. However, it notes that the improved productivity has, so far, led to increased wage rates rather than reduced employment levels.
Treasury Markets
10-year Treasury yields are consolidating around 4.10%, with resumed BLS inflation readings likely to provide further direction.
Trump-appointee Fed Governor Stephen Miran on Monday repeated his call for a half-percentage-point cut at the FOMC December 9-10 meeting. (Reuters)
Consumer perceptions of long-term inflation remain elevated, with the University of Michigan survey indicating that perceptions of 5-year inflation have averaged 3.7% over the past three months.
Dollar & Gold
The dollar has weakened following high private sector layoffs in October, with financial market pricing indicating a 63% chance of a 25-basis-point rate cut in December. (Reuters)
JP Morgan estimates that the labor market added 52K jobs in September but lost 35K in October, increasing the likelihood of another rate cut in December.
Conclusion
We expect further rate cuts to weaken the dollar and boost prices of gold and silver.
S&P 500 performance depends on projected AI productivity gains, driving a massive increase in earnings for AI-related corporations. However, there is currently limited evidence to support this conclusion.
Acknowledgments
- CoinDesk: Bitcoin
- Federal Reserve of St Louis: FRED Data
- Reuters: Fed policymakers divided over need for more rate cuts
- Jonathan Levin, Bloomberg: AI Is Eating All The Earnings
- Leo Nelisson, SA: My Toughest Market Call In 14 Years
- JP Morgan: Weekly Market Recap
- JS Hartley, F Jolevski, V Melo, and B Moore: The Labor Market Effects of Generative Artificial Intelligence
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.
