Last month’s interest rate hike sparked fears in the stock market, but some charts indicate the process may have run its course for now.
Movements have occurred between bonds, oil and copper prices. Each of these may have reached levels where they need to take a break.
This is important because higher interest rates often divert money away from big tech stocks like Apple (AAPL) and Amazon.com (AMZN). This can slow down the market as a whole and stimulate volatility. An easing in interest rates could stabilize these tech companies and the wider Nasdaq-100.
Crude Oil Graph
Energy prices are important because they are very sensitive to economic growth and have an impact on inflation.
Crude Oil Futures (@CL) began to climb in November when Pfizer (PFE) reported positive vaccine news. This journey with hope resumed.
@CL suspended around $ 50 in January before continuing past $ 60 last month. It has now returned to a downtrend line between the highs of October 2018 and early 2020. This could potentially slow its rally.
Oil fundamentals may also have peaked at this time. Last week, for example, crude oil inventories unexpectedly rose for the first time in more than a month. There is talk of OPEC + potentially increasing production at a meeting next week. Domestic production, measured by the Baker Hughes Rig Count, also returned to a 10-month high.
Bonds graph
The yield on 30-year Treasuries has followed a similar path to that of energy. It also peaked on February 25 at its highest level in 15 months. Additionally, the iShares 20+ Year Treasury Bond (TLT) ETF briefly dipped below its March 2020 low before retreating. (TLT moves in the opposite direction as the returns.)
These two reversals suggest that the movement may have run its course for now.
In addition, the yield curve between two- and ten-year Treasury bills widened to 1.37 percentage points. It was his highest reading since November 2015.
Copper graph
Copper futures (@HG), like oil, are very sensitive to the global economy. They also rallied from long-term lows and peaked at 4.3755 on February 25 – slightly above a nine-year high. However, prices retreated quickly, another sign of frantic buying.
These three charts highlight the dramatic improvement in economic sentiment that took place over the past month. The biggest worry is that inflation will skyrocket as business returns to normal. But is it a real fear?
Federal Reserve Chairman Jerome Powell downplayed the risk, telling Congress last week that overall price increases are “soft” and “below our long-term 2% target.” He reiterated his promise to keep short-term interest rates low.
Second, it’s important to remember that social lockdowns created a downturn in the economy. About 10 million Americans remain out of work and capacity use is 1.5 percentage points below pre-pandemic levels. There are bottlenecks and price pressures in some areas, particularly in the manufacturing sector. But output and productivity will likely rebound as things return to normal.
Inflation and income
Finally, the companies adapted to the circumstances and managed to grow their profits in the last quarter. Factset reports that earnings estimates for the current quarter have risen 5% since the start of the year. This is the second most aggressive upgrade in 18 years, potentially offering some protection against cost pressures.
In conclusion, the recent surge in commodities and interest rates predicted a significant improvement in the economy. However, a good deal of the good news can be taken into account. It might allay the panic and help calm the comeback.
