It looks like we’re finally starting to see some signs of life in the markets after a long, drawn-out period of treading water.
The CPI and PPI figures released in the US this week have shown that inflation is coming off the boil rapidly.
Bonds are rallying hard. The US Dollar Index is nosediving, and commodities are jumping as a result.
Stocks are continuing to rally in the face of high interest rates and slowing growth, which remains a conundrum.
The big question that needs to be answered is whether the peak in rates will be enough to inspire another big leg higher in stocks from here…or whether growth is about to surprise to the downside and kneecap the rally.
Regardless of the path of stocks from here, I reckon bonds will rally and yields will fall.
So it’s a good time to add some bond exposure as a hedge on stocks.
It’s been two years since the all-time high was created in the ASX 200. When you look at past market peaks that have seen multiple year corrections, it’s usually a great time to be buying stocks two years after the peak.
That fact is at the top of my mind despite the fact we still have headwinds to navigate as rates remain at levels that could cause something to break.
Most fund managers remain underweight stocks due to the bearish conditions, so the rally we’re seeing now could just be short covering and forced buying by fund managers chasing stocks higher.
The next results season will be an important one to watch. Is growth slowing enough to hurt earnings and are high rates starting to pinch margins?
Who knows, but things are starting to heat up, which is great after battling through such a boring time in the markets for so long.
In today’s Closing Bell video, I have a look at US two-year bonds, the S&P 500, the US Dollar Index, and gold.
Until next week,
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Murray Dawes,
Editor, Money Weekend
