(16 July 2023) Stocks rose sharply last week as CPI inflation data came in below expectations and rekindled hopes for a soft economic landing. The S&P 500 gained more than 2% on the week to 4505 while the Nasdaq-100 added more than 3% to 15,565. This bullish outcome was quite unexpected as I thought the early week Mercury-Mars-Rahu alignment might have inflicted more damage. However, the early week turned out to be only relatively weaker (i.e. flat) compared to the more bullish late week influence of the Venus-Neptune alignment.
With CPI inflation now at a more tolerable 3% and Core inflation under 5%, investors are starting to price in significant rate cuts next year. While the Fed is likely to deliver another 25 basis point hike at its July 26 FOMC meeting, there is a consensus that the long-awaited pivot towards easing is not far off. Certainly, if inflation continues to moderate, there is good reason to expect the Fed to reverse course, especially with yields falling sharply as they did last week. Both the 2-year and the 10-year yields retreated from their key resistance levels at 5.00% and 4.05% respectively as the bond market now thinks the worst is behind us. One possible area of concern is that the modest annual increase in June inflation may have been due to base effects, i.e. the June 2022 inflation rate of 9% was the highest monthly print from last year and therefore the June 2023 inflation rate would be more likely to show a much smaller increase. Since subsequent monthly rates in the second half of 2022 were below 9%, it is not certain that we will see a continued downtrend below 3% for the rest of 2023. If annual inflation starts to tick higher, it could spark a unwelcome reaction in the market.
The planetary outlook is uncertain. It now seems that I was wrong in my base case expectation of a decline leading into the Venus retrograde station on July 22. That means that we could see further upside this week in the days leading up to the station. As I have previously noted, the time around the Venus retrograde station often marks trend changes, either bullish or bearish.
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This week (July 17-21) looks mixed with increasing downside risk. With Venus turning retrograde on Saturday, July 22, we could be approaching an important trend change. The late week looks more bearish in that respect as Mars opposes Saturn on Thursday and Friday. Down days are therefore more likely at that time…
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Photo Credit:Jamie McCaffrey
