Stocks Rally Ahead of GDP
Stock indexes rally ahead of the GDP release tomorrow at 8:30 am. The estimate is -6.% Quarter over Quarter which is inline with last release. The markets rallied on the fact that the Bank of England started buying bonds after a a liquidity crunch affected several pension funds. This rally was fueled by the dollar dropping over 1.5% today and the 10 years treasury bonds being bought. The 10 year treasury made highs of 3.99% yesterday only to close at 3.7% today. Essentially bonds moved 7.5% in price in 24 hours. The shift is due to the bond buying. If the UK buys Gilts, which is the equivalent of a US treasury, other Sovereign bonds will reprice. This repricing was a major shift in policy in the last 24 hours. We do not know how long this bond buying in the UK will last but for now it’s important that we know the reason for the rally. Overall yesterday’s news at the close was not great. AAPL announced slowing their iPhone 14 production. Consumer confidence came in significantly higher at 108. This shows the consumer is still spending actively. New home sales were 185,000 higher than anticipated. All of this points to a frothy economy despite three 75 basis point rate hikes. Tomorrow GDP will take center stage followed by Friday and the release of core PCE Index. PCE index .5% Month over Month is the estimate. The recent CPI number that came in higher than expected calculates rent and shelter differently than PCE. PCE gets its data from businesses versus thousands of consumers and they place housing into services. This could lead to not seeing the large gain in rents that CPI showed and would be a positive for the equity markets.
This graph highlights the Following: 10 year treasury(blue) , U.S. dollar(green) , SP500(orange)
The purpose of this graph is to see the correlation. For the past 12 months for every 1% the dollar rose the SP500 dropped 1% roughly. It’s not exact but the correlation is obvious.
Today we can see as the dollar dropped ,the SP500 went up and bonds yields dropped signifying buying of the 10 year treasury. Right now we are in one big trade. It’s a macro trade driven by economic data and government intervention. We can plan, analyze charts but the biggest moves are happening outside of company fundamentals and technical analysis. Focus on the larger picture for now. I get into more detail in the video below. It’s 8 minutes long.
The trading community is open for the next 5 days after which it will closed for an undetermined period of time. The first 20 new members get a free 30 minute onboarding/coaching call with me. There is no better time to learn than now. Click the link to learn more.
Any Questions Feel Free to Reach out Arete@aretetrading.net