Hey traders! Geof here with a deep dive into this week’s market action and what’s coming up next.
Market Indexes: All-Time Highs with a Twist
Let’s start with some exciting news — the S&P and Nasdaq are making all-time highs. The Dow’s hitting new heights too, but with a bit of a catch. Here’s where it gets interesting: these indexes aren’t all created equal.
The Nasdaq and S&P are market cap weighted indexes, which means larger companies have more influence on the index’s movement. The Dow, however, is a price-weighted index. This creates some quirky dynamics. Right now, UnitedHealth (UNH) – the most expensive stock in the Dow — is getting hammered after their CEO was tragically assassinated. This single stock is weighing down the entire Dow index, which wouldn’t happen if it were market cap weighted.
If the Dow were market cap weighted like the other indexes, it would probably look just like the S&P and Nasdaq. But because of this price weighting, it’s experiencing some unique volatility.
Commodities: A Nuanced Landscape
Let’s dig into the commodities market. Gold’s been in a corrective mode, coming off its $2,800 peak. Right now, it’s trying to stay above $2,650, and it’s doing a pretty good job of holding that line.
Silver’s staying comfortably above $30, and copper is holding steady above $4. These metals seem to be finding a bit of a base after recent fluctuations. It’s like they’re catching their breath after a wild ride.
Bonds and Interest Rates: A Quiet Rally
We’ve seen some interesting movement in the bond market. Interest rates have been pulling back, with bonds staging a nice little rally. We were down around the 1.15-1.16 area on the 30-year bond, and now we’re sitting around 1.20.
The 10-year yield is now below 4.25%, which Geof notes is actually kind of a big deal. It’s subtle, but these are the economic signals traders need to watch.
Upcoming Economic Events
Looking ahead to next week, there’s not a whole lot happening on Monday and Tuesday. But Wednesday and Thursday are going to be crucial. We’ve got the Consumer Price Index (CPI) coming out on Wednesday, followed by the Producer Price Index (PPI) on Thursday.
Geof emphasizes that the CPI is the more important number. While the PPI shows what producers are paying for goods, the CPI reveals what consumers are actually spending — and that’s what really matters. If consumer prices are still climbing, it means people have less money to spend on other things.
The Quiet Night Market: S&P Range Observations
The overnight range of the S&P has been remarkably compressed recently. Going back to the early 2000s and 1990s, the average overnight range was typically around seven to eight points. This week, we’re seeing similar patterns.
Last night, the S&P range was just seven points. The previous night, it hit around 12 points. What does this mean? It suggests that international markets in Europe and Asia aren’t doing much movement until the US market opens.
In short, it’s been really, really quiet at night.
This tight range is noteworthy because it indicates a certain market stability — or perhaps a sense of anticipation waiting for key economic indicators like the upcoming CPI and PPI reports.
The Inflation Puzzle
The big economic question remains: Can we cool down inflation? I’m skeptical. We’d actually need to see negative CPI and PPI numbers to truly tackle inflation.
Take agricultural commodities, for instance. Wheat and corn prices have basically been cut in half from their previous highs.
But there’s a catch: Producers and retailers are still keeping prices elevated. Why? Labor costs and transportation expenses are still high.
Energy Prices: A Volatile Landscape
Crude oil is having a tough time breaking the $70 barrier. It’ll pop up briefly — like when it hit $72 earlier this week — but then quickly gets pushed back down to around $67. Gasoline is stuck around $1.90 per gallon.
Natural gas is a different story. It’s doing quite well, driven by cold weather and high power demand.
Jobs and Economic Health
This morning’s non-farm payroll report brought some encouraging news.
We saw about 197,000 private sector jobs added, with the government contributing another 33,000 jobs.
Hourly earnings are up, which suggests companies are still hiring and wages are holding steady.
For traders and economists, this paints a picture of an economy that’s resilient, even in the face of ongoing inflation concerns.
Looking Ahead
Next week, all eyes will be on those CPI and PPI numbers. They’ll give us crucial insights into the economic landscape, potentially signaling whether we’re heading towards a soft landing or facing continued inflationary pressures.
— Geof Smith
P.S. This time last year, I made a bold prediction about the 2024 Gold Supercycle… And just look at how well that has played out. Now I’m sharing my next big prediction for 2025!
