U.S. Equity markets closed higher following across the board buying in all sectors. The NASDAQ 100 led yesterday’s gains, closing higher by 1.79%. Federal Rate hikes have driven more funds into the safety of money-market assets. These assets have surged by $500 billion in the past year. When the central bank starts cutting rates, that money will go back into stocks. The source of the next stock market rally is already building. If you have had any money in a savings account since the financial crisis, one thing would be painfully obvious. You cannot generate any returns. After all, to try and stabilise the financial markets and rescue the economy, the Federal Reserve cut interest rates to zero. But, by doing that, the central bank killed the yield on U.S. Treasurys’. That is important for the return on savings accounts at banks. Those institutions invest in U.S. government debt to cover the interest costs on savings accounts, plus make a little money. In July 2021, the yield on 10-Year Treasurys was 1.10%. So, a bank earning just over 1% on an investment is not going to pay much of a return on a savings account if it is hoping to make a profit. In fact, the payout at the time was 0.4% annually. That is not much of a return. The lack of return also hurt a competing product – Money-Market Funds. These are cash-like investments that pool investor funds. Like banks, Money-Market Funds put money to work in safe investments like U.S. Treasurys. But they typically invest in shorter-term bonds where the payouts are lower. However, the recent rate-hike cycle by the Fed has changed all of that. Now, individuals can earn better returns by saving cash. Goldman Sachs (GS) and Citigroup (C) will pay more than 4% annually for investing in a certificate of deposit. Similar rates can be found in Money-Market Funds managed by CIT and Citizens Financial (CFG). Those attractive rates of return in relatively “safe” assets have led to one thing -. a swelling supply of cash not invested in the stock market. The easiest way to see how much money is stored in money-market assets is to follow data from the Investment Company Institute. Its members are mutual funds that manage close to $30 trillion. And it tracks the classes of funds where that money is invested. money-market assets have exploded higher. In fact, the most recent data shows that total assets have now swelled to more than $5.1 trillion. And as I established earlier, there is a driving factor behind this, rising interest rates. Now, higher rates have had a twofold effect. First, the increase meant any company that borrows would now owe more money. Typically, that hurts profitability. Second, as investors figured this out, they began to sell risk assets like stocks and instead invested in safety vehicles like Treasurys or Money-Market Funds. Yet the current rate-hike cycle was different than others we have experienced over the past 40-plus years. It started with the Fed guiding for a peak rate of 1.5% but evolved into a guidance of at least 5% (where we are currently). The result hurt stocks. In 2022, the S&P 500 lost 18.2% on a total return basis (dividends included). This is a stark contrast to the 9.5% return over the Index’s lifetime. So, suffice it to say, 2022 was an awful year for investors. Yet, while investors may be nervous about the current economic environment, that won’t last forever. Late last week, Treasury Secretary Janet Yellen and Fed Chair Jerome Powell said they would do all they can to ensure the banking system does not fail and depositors are protected. Over the weekend, President Joe Biden made a similar statement. Earlier this week, Fed Vice Chairman for Supervision Michael Barr said the central bank would use all the tools at its disposal to stabilise the financial system. In addition, the Fed signalled last week that rate hikes are ending. Powell said it was removing language from its statements that ongoing rate hikes were needed to cool inflation growth. And policymakers left their guidance for peak interest rates unchanged for the first time since March 2021. The changes mean investors can worry less about further rate hikes and focus more on investing in solid companies once again. History tells us when funds head for the safety of money markets, the stock market tends to tumble. This was never more apparent than at the beginning of the COVID-19 pandemic when economic uncertainty led to a $1.1 trillion surge into cash and a 33.8% drop in stocks. But once investors felt more confident about the economic outlook, the tables turned and the S&P 500 gained 120.2% over the following 21 months. Today’s setup is not much different. As I said previously, more than $500 billion has sought the safety of cash once again. Over that stretch, stocks have felt the brunt of the pain. But inflation growth has turned the corner. Since peaking at 9.1% in June of last year, the Consumer Price Index has dropped to 6%. Based on recent indicators like the regional Fed manufacturing surveys, it’s headed even lower. That, combined with the commentary I cited above from Powell and Barr, indicates the central bank is prepared to introduce more support for the banking system and the economy. That is likely to include cutting rates as the year progresses. When the payout on Money-Market Funds falls once more, investors will seek out better returns for their money. That will lead them back to the stock market, fuelling the next rally in the S&P 500. Within the S&P 500 Index, all 11 sectors finished higher. European Markets closed higher. GFK Consumer Confidence showed Consumer Sentiment slightly improving on the backs of lower energy prices, although renewed recession fears muted further improvement. U.K Credit Growth for February slowed from January as rising interest rates have forced consumers to scale back increasingly expensive borrowing. ECB Member Muller said inflation risks are still tilted to the upside, making the case for more interest rate hikes. In Asia, Bank of Japan Deputy Governor Uchida said it is prepared to adjust monetary policy as needed, implying it will raise interest rates if inflation growth continues to accelerate. Elsewhere Oil fell 0.31% while Gold closed 0.46% lower after a quiet session.
To mark my 2750th issue of TraderNoble Daily Commentary I am offering a special 2-Year Rate of Euro 2750 for my Platinum Service which includes 1 to 4 updated emails throughout the trading day to demonstrate this value, a monthly subscription over the same period would cost 4440 euro in total This offer represents a 38% discount and is open to both new and existing members. If anyone is interested in this offer can you please email me on bryan@tradernoble.com for details
For anyone following my Platinum Service it was flat yesterday and is still ahead by 6393 points for March after finishing February with a gain of 3164 points, after closing January with a gain of 4687 points, while finishing December with a gain of 2054 points. November ended with a gain of 4789 points, while finishing October with a record gain of 9619 points, making 6660 points in September, after closing August with a gain of 2228 points, having made 2660 points in July, following a gain of 3371 points in June. The Service made 3651 points in May, after making 762 points in April, following a gain of 5883 points in March. The Platinum Service made an impressive 5324 points in February, after ending January with a gain of 3878 points, more than making up for December’s 932 points loss. Since I started this New Platinum Service in June 2015 it has averaged a monthly gain of over 1600 points. I have a YouTube Channel which contains recent interviews I have given This can be viewed by clicking HERE Please subscribe to this for new interview notification
Equities
The S&P 500 closed 1.42% higher at a price of 4027
The Dow Jones Industrial Average closed 323 points higher for a 1.0% gain at a price of 32,717.
The NASDAQ 100 closed 1.87% higher at a price of 12,846.
The Stoxx Europe 600 Index closed 1.29% higher.
Yesterday, the MSCI Asia Pacific fell 0.16%.
Yesterday, the Nikkei closed 1.33% higher at a price of 27,883.
Currencies
The Bloomberg Dollar Spot Index closed 0.3% higher.
The Euro closed 0.1% lower at $1.0835.
The British Pound closed 0.2% lower at 1.2312.
The Japanese fell 1.3% closing at $132.81.
Bonds
Germany’s 10-year yield closed 3 basis points higher at 2.33%.
Britain’s 10-year yield closed 2 basis points higher at 3.47%.
U.S.10 Year Treasury closed 1 basis points higher at 3.57%.
Commodities
West Texas Intermediate crude closed 0.31% lower at $72.97 a barrel.
Gold closed 0.46% lower at $1965.10 an ounce.
This morning on the Economic Front we have the Euro-Zone Economic Sentiment Index and Consumer Confidence at 10.00 am. At 12.00 pm we have the Bank of England Quarterly Bulletin, followed by German CPI at 1.00 pm. Next, we have U.S. GDP and Weekly Jobless Claims at 1.30 pm. Finally, at 5.00 pm we have a speech from Swiss National Bank Member Maechler.
Cash S&P 500
The S&P built value overnight before surging as yet again anyone short the market for any length of time is crushed. In my view this all boils down to the insane liquidity that has and is been injected into the system by Central Banks as no one in authority wants a crash on their watch. Yesterday’s move higher saw the S&P close above its 50-Day Moving Average (4014) as Fund Managers try to put the best possible spin on the Quarter. We saw some negative divergence on the close as is the one reason why I have held on to my late 4025 short position. The other reason I have stayed short is the behaviour of the VIX which closed last night 4% lower at 19.10. This is an important trendline and may lead to a spike higher. If this happens then we will see at least a mild sell-off in the S&P. I will add to my 4025 position at 4041 with a higher 4055 tight ‘’Closing Stop’’. The S&P has support from 3982/3997 where I will be an aggressive buyer with a 3969 ‘’Closing Stop’’. I will have a T/P level on my 4025 short position at 4016. If any of the above levels are hit I will be back with a new update for my Platinum Members.
EUR/USD
The Euro traded in a narrow range over the past 24 hours. I am still flat as the market never came close to yesterday’s buy range. My own view is the Euro will test the 1.1000 major resistance area over the coming days. Today, I will leave my 1.0730/1.0790 buy level unchanged with the same 1.0685 ‘’Closing Stop’’.
June Dollar Index
I am still flat as the Dollar continues to build value below 103.00. I will again lower my sell level to 103.2/103.80 with a lower 104.15 ‘’Closing Stop’’.
Cash DAX
The DAX surged yesterday, and I am still flat. Bears are definitely frustrated with the price action in the German DAX as no matter what the news the market just keeps attracting large scale buying buyer on any dip. This morning the DAX is trading at 15360. I will now raise my buy level to 15150/15230 with a higher 15085 ‘’Closing Stop’’. I still have no interest in being short the DAX at this time.
Cash FTSE
The FTSE finally moved higher over the past 24 hours have been on the floor for most of the past month. I will now raise my buy level to 7390/7470 with a higher 7295 ‘’Closing Stop’’.
Dow Rolling Contract
I am still flat as the Dow never came close to yesterday’s buy range. The Dow has now closed comfortably its 200-Day Moving Average. The next major resistance is the 50 Day Moving Average at 33135. This area should attract selling on any initial test. Therefore, I will be a small seller from 33150/33400 with a tight 33555 ”Closing Stop”. The Dow has support from 32150/32400 where I will be an aggressive buyer with a 31995 higher ”Closing Stop”.
Cash NASDAQ 100
Despite Higher Bond Yields the NDX led yesterday’s gains as the market continues to build value above 12600, closing at 12867 last night. I am still flat as the market never came close to yesterday’s buy range. I will now raise my buy level to 12600/12750 with a higher 12495 ‘’Closing Stop’’.
June BUND
No Change. I am still long at an average rate of 136.20 from Tuesday. I will leave my 135.15 ‘’Closing Stop’’ unchanged. I will now lower my T/P level to 136.50. If any of the above levels are hit, I will be back with a new update for my Platinum Members.
Gold Rolling Contract
No Change. I am still a buyer on any dip lower to 1933/1948 with the same 1923 ‘’Closing Stop’’. We have resistance from 2015/2030 where I will again be a small seller with a 2041 ‘’Closing Stop’’.
Silver Rolling Contract
Silver continues to creep higher. I am still long Silver from last month at a price of 23.10. I will leave my 21.45 ‘’Closing Stop’’ unchanged. I will also leave my 23.55 T/P level unchanged. If any of the above changes I will be back with a new update for my Platinum Members.
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