US equity markets continue to move higher this week in what some might call a bear market rally. The approximate 10.5% rally began on June 17th as investors attempt to find some price stability. This comes amid the confirmation yesterday of a recession in the US as the economy shrank -0.9% and has now produced 2 consecutive quarters of negative GDP (April was -1.4%). Stocks however responded favorably to the much expected 0.75% rate hike announced by the Fed at yesterday’s meeting,
At the press conference, Fed Chair Powell was very hawkish, staying the course that the Fed is committed to getting inflation under control. Although US indices rallied into the close yesterday it will be interesting to see if the S&P500 can hold the 4000 round number given the 'recession' negative GDP confirmation number coming out this morning. Traders still appear to be taking the scheduled rate hike news as an excuse to try to make a "the faster the fed raises rates the sooner it will stop” play. Previous attempts to rally the market this year have run out of gas with the largest bear rally making it to +12.2% before falling.
Rising traded interest rates in the US have sparked a rally in the US dollar, which has put pressure on gold and commodities priced in US Dollars. Natural gas has been particularly volatile around news related to US export capacity, while Crude oil has continued to backslide, impacting energy stocks. Cryptocurrencies and crypto related stocks have had minor rallies over the past few weeks as their correlation to risk equity markets becomes more and more apparent.
With a number of companies left to report earnings still as well as forecasts into the remainder of the year will cause some optimism or fear depending on the numbers as we continue into the later part of Q3. Next week is a busy week in the US for economic news with the Non-Farm Employment change number coming out on Thursday. The last three months saw the US create more jobs than the forecast which only adds fuel to increased inflation.
In this issue of Equity Leaders Weekly, we look at the implications of inflation on US Real Estate and some very key support levels in the Gold Futures Continuous Contract.
With recent US housing market data showing the impact of rising interest rates on the interest-sensitive Real Estate sector starting to bite, real estate stocks have come under increased pressure with the Federal Reserve hiking the benchmark rate by 0.75% as expected. The US Case-Schiller National and Case-Shiller Composite 20 Indexes are both at new all-time highs in both real and nominal terms.The average for a 30-year loan fell from 5.54% last week to 5.3% according to Freddie Mac but have climbed from 3.11% from the end of last year. Pending home sales in June fell by the most since April 2020. New data from the National Association of Realtors shows a huge 20% YoY decline in pending home sales which is the lowest reported figure since September of 2011. Mortgage purchase applications were also down around 19% from a year earlier for the week ending July 15th.The iShares US Real Estate ETF (IYR) peaked back in January and following an initial downturn, bounced back strongly in March and into April before peaking at a lower high. Since then, IYR has been steadily falling and is currently in a Low Pole Warning chart signal on a 2% chart. With a bearish SMAX score of 2, IYR is exhibiting weakness relative to all asset classes. Minor support can be found at $88.4 to account for a 3-box reversal, with major support found at $86.67. Next potential downside support appears near $80. Next potential resistance appears near $99.56 and $109.92.
The Gold continuous contract (GC.F) is looking to close July in the red which will be the fourth consecutive month that the shiny metal has had a bearish month. One of the reasons that price is being held down is that the gold contract is priced in USD, which has been the strongest major currency in the world in recent months. The greenback has been soaring lately, getting a tailwind from rising US interest rates and capital seeking a haven in US cash that has been so overwhelming that even gold has been unable to keep up.
Keeping an eye on the price of gold may give investors an idea of whether the US Dollar rally has peaked or is continuing. Gold peaked out 5 months ago on March 8th at a high of $2078.8/oz but faltered just short of its all time high of $2,089.2. Gold is currently at and above two very key levels of support. Currently on the point and figure chart below gold has created but not confirmed a bearish spread triple bottom breakout around the $1700 round number. A confirmed break below this would take price down to an even stronger level of support just below at $1680. If either of these levels hold gold could see a rally into Q3 and Q4 of 2022 but if they do not hold price could continue its downtrend and into support near $1600. Resistance above comes in at $1760 and $1875. The price of gold gapped up today on the daily open and has continued to rally, currently up 5.5% off the low printed one week ago at $1678.
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