TSP Smart: Quicklook 15 August 2023

This rally broke up in May and it was a strong one. The stock market bottomed last October when the Japan intervened in their currency and this also created a pull back in US interest rates. The mega cap stocks hated rising rates, but loved the pull back and all the liquidity the Fed pumped in to the markets due to the regional bank failures.

All rallies come to an end and it appears this one finally has. The mega rally in mega caps broke its steeply rising trend line. The SP500 and small caps have broken shorter trend lines, but its been the mega caps driving the market.

But no worries, as long as interest rates do not rise to a new high any time soon.

Oops. Anyone got a monkey hammer…

And while I have been watching Japan and their Yen issue, an elephant has entered the room. China has a devaluation issue of their own.

The US Dollar wrecking ball is having a month. I will not mention that small-fry Russia just raised their interest rate over 3% to 12% in an emergency measure to stop the Ruble from going to zero.

And if none of that makes sense to you, maybe this will…

Finally, mortgage rates have normalized to 3% inflation. Now if we can just bring inflation down to 3% from the 5-6% that I expect to see at the turn-of-the-year.

Bottomline: The stock market has not yet adjusted to normalized interest rates. It only has to come down another 40% to be in the vicinity. And stuff is really starting to break out in the financial sphere.

Caveat: Central banks typically intervene when the markets look like they are going to reset faster than they want. Keep an eye out.

Invest Smart,

Michael Bond

Categories: Perspectives

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