{"id":60383,"date":"2025-01-15T09:22:00","date_gmt":"2025-01-15T09:22:00","guid":{"rendered":"https:\/\/thepatientinvestor.com\/?p=60383"},"modified":"2025-01-15T09:22:00","modified_gmt":"2025-01-15T09:22:00","slug":"inflation-fears-threaten-higher-interest-rates","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2025\/01\/15\/inflation-fears-threaten-higher-interest-rates\/","title":{"rendered":"Inflation fears threaten higher interest rates"},"content":{"rendered":"

Markets are hesitant ahead of December CPI data due for release in a few hours.<\/p>\n

Fearful of a resurgence in inflation, Treasury investors are driving up long-term interest rates, with the 10-year yield headed for a test of 5.0%.<\/p>\n

\"10-Year<\/p>\n

Long-term inflation expectations are rising, with the University of Michigan 5-year outlook climbing to 3.3%.<\/p>\n

\"University<\/p>\n

Producer prices are also rebounding, with services PPI recovering to 4.02% in December.<\/p>\n

\"PPI<\/p>\n

We do not anticipate a significant hike in CPI, but there are warning signs of a rebound.<\/p>\n

\"Brent<\/p>\n

Brent crude climbed to $80 per barrel on the threat of new sanctions on Russian shipping impacting supply. Retracement that respects support at $76 would warn of another advance.<\/p>\n

\"Brent<\/p>\n

Energy prices are a key vector for inflation. The chart below shows how energy CPI (orange) rose ahead of headline CPI (red) in 2021, and its fall in 2022 – 23 was instrumental in inflation’s subsequent decline.<\/p>\n

\"Energy<\/p>\n

Stocks<\/h2>\n

Mega-cap technology stocks are dragging the S&P 500 down, with former frontrunner Nvidia (NVDA) falling 7.2% over the past two months. Tesla (TSLA) has also shed almost half its December gains.<\/p>\n

\"Top<\/p>\n

The S&P 500 index is retracing to test resistance at 5850. Respect would warn of a further decline to 5700.<\/p>\n

\"S&P<\/p>\n

Large caps enjoy more support, with the equal-weighted index ($IQX) respecting key support at 7000.<\/p>\n

\"S&P<\/p>\n

Rising long-term interest rates have set off a migration from high-multiple growth stocks to more defensive value sectors, with the Russell 1000 Large Cap Value ETF (IWD) outperforming the Russell 1000 Large Cap Growth ETF (IWF) in the past few weeks.<\/p>\n

\"Russell<\/p>\n

Financial Markets<\/h2>\n

Bitcoin struggles to break resistance at $100K as financial market liquidity tightens. A reversal below $90K would warn of a liquidity contraction likely to affect stocks and bonds.<\/p>\n

\"Bitcoin<\/p>\n

Gold<\/h2>\n

Fears of persistent inflation drive gold and geopolitical tensions fuel further demand. A higher Trend Index trough indicates rising buying pressure and a breakout above $2,725 per ounce would signal another test of $2,800.<\/p>\n

\"Spot<\/p>\n

The monthly chart below shows the long-term view, where breakout above $2,800 would offer a target of $3,600.<\/p>\n

\"Spot<\/p>\n

Conclusion<\/h2>\n

Rising long-term Treasury yields reflect the growing risk of long-term inflation.<\/p>\n

The outlook is bearish for growth stocks trading at high earnings multiples and financial instruments with a duration longer than two years.<\/p>\n

We remain bullish on gold and defensive stocks.<\/p>\n

Acknowledgments<\/h4>\n