Tuesday Market Briefing 06-02 — Don’t Fight the Fed

“Don’t fight the Fed”

It’s one of the most over-used Wall Street axioms, repeated on the news, in investment board meetings, and around the dinner table.

But, like most cliche phrases, the statement became popular because it is true!

With all of the risk associated with coronavirus… all of the fear and destruction from social unrest and riots… and all of the economic uncertainty… stocks are still trading higher!

Much of this has to do with the Fed’s posture and the aggressive stimulus coming from the government. And until we see this extra capital fully absorbed and priced in to the market, the bullish trend is likely to continue.

Dow June Futures: Up 120 (0.47%)
S&P June Futures: Up 10.50 (0.34%)
Nasdaq June Futures: Up 15.50 (0.16%)

Stocks continue to push higher despite uncertainty and widespread social unrest in the U.S.. This points to a underlying strength and confidence from investors, and is evidence of the capital on the sidelines we talked about yesterday.

This is not the time to fight the trend and bet on a re-test of the low. We may get that opportunity later in the year. But for now, the smart money is still on the side of a continued market recovery.

Be safe… Don’t take too much risk with your capital right now. But certainly don’t take aggressive bear positions while the market continues to advance.

Gold June Futures: Up 1.50 (0.09%)
Silver June Futures: Up 0.10 (0.53%)

Silver had a very strong rally over the last two trading sessions. It’s natural for silver to consolidate a bit before pushing above a resistance point set in February.

Gold continues to trade in its range set during the month of April. A clear breakout above $1,800 per ounce would likely trigger a tremendous amount of buying and lead to a price surge.

10-Year Yield: 0.669%  
2-Year Yield: 0.158%

Rates and corresponding treasury bonds continue to trade in a tight range.

The Fed will continue to keep interest rates low, hoping to encourage 1) corporate borrowing at cheap levels to keep businesses solvent and 2) lower personal savings to help drive spending that can support economic growth.

Low rates are driving the value of the U.S. dollar lower. This can be helpful for blue chip companies that sell to international markets. That’s because a low dollar corresponds to stronger international currencies, leaving potential international buyers with more spending power.

Breaking Morning News

DKS reported earnings that were below expectations. But as investors look closely at the company’s prospects, there is a lot to like. DKS is benefiting from strong consumer demand for outdoor gear. As more areas of the country start to ease lockdown restrictions, people are spending more time outside. And that’s great news for this outdoor sporting goods store!

Two large IPO transactions are slated for this week. Warner Music Group and ZoomInfo Tech will both debut on U.S. markets this week, raising $2.5 billion between the two. This is a healthy sign of demand in the overall stock market. And if these deals go well, it will add to investor confidence that is already quite strong.

This week, China began purchasing U.S. soybeans. This may be a sign that China is willing start working toward holding up its end of the trade agreements that were reached last year. Time will tell whether this is a one time purchase or the start of a bigger trend. But for now, the purchase is a positive sign that could help cool tensions and lead to a more open dialogue between the U.S. and China.

Chart of the Day

 

After a sharp dip during the peak of the coronavirus crisis, Americans are now actively searching for home listings.

It’s encouraging to see the real estate market starting to rebound quickly. And with a limited number of homes on the market right now, home values could rise very quickly!

Quote of the Day

The secret to being successful from a trading perspective is to have an indefatigable and an undying and unquenchable thirst for information and knowledge. ~Paul Tudor Jones

Final Thoughts

The trend for U.S. stocks continues to be higher. While I’m not willing to turn a blind eye to the clear risks to our economy right now, it’s important to be aware of the Fed’s power in supporting financial markets, and the powerful “fear of missing out” motivator driving investors right now.

Don’t fight the trend. But be ready to shift to a more defensive position when the time is right!

Talk to you tomorrow!

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Zach Scheidt