In the past week, positive data on the GDP of some European countries, which had just been released, led European stock exchanges down. Worse-than-expected data s on U.S. GDP, on the other hand, caused American ones to outperform, which, then, ended up dragging Europe upward as well.
It continues, however, the world upside down.
Any expectation hints at a softer stance by Central Banks on the interest rate issue raises the stock markets: which, conversely, react badly to good economic data that would make central bank intervention more aggressive.
Wednesday afternoon, April 26 it seemed evident a continuation of the S&P500’s sinking, at least as far as the 4050 level, which we have talked about at other times.
Instead, it was confirmed in the statistic of a typical day of relative lows and highs from reversal, and reversal it was, and a powerful one at that.
The S&P500 closed at the highest weekly level since August 2022, beyond any short-term resistance, at 4188.
The high did not, moreover, override the relative high of April 18.
Nonetheless, in the United States, there was another important piece of news that went almost unnoticed: the U.S. House of Representatives approved the extension of the U.S. debt ceiling. And it is instinctive to think that the uptick in the market was a sign of optimism for an important first step taken in the direction of averting the risk of a crisis.
Now, the approved bill goes to the Senate.
Chuck Shume, leader of the Senate, a name that does not recur much in the financial press, declared that the bill “is dead on arrival”, much to the welcome of those who hoped that the battle was at a point near its conclusion.
On Tuesday, April 25, there was another important piece of news: Biden is running again for America 2024. He chose, to say so, on the same day as the announcement of his candidacy in the previous election in which he emerged victorious.
So, American voters, despite themselves, may find themselves choosing, in all likelihood, between Biden and Trump.
Arizona Republic, an American newspaper that is home to the pen of a great journalist of Ingrid Jacques’ caliber, headlined, “Biden or Trump: please give us someone else.”
Extending the debt ceiling, the U.S. needs it, world finance needs it, but Biden desperately needs it to survive politically.
If there are consequences in the financial markets due to an excessive tightening of the position on the Democratic side, the association of his figure with an eventual crisis will be inevitable. And the real risk of seeing Trump again in the presidency of the United States in the November 2024 elections will be very likely.
Not only that: in this scenario, a market crash during the Trump presidency (not the temporary crisis that we expect a few weeks from now, but a much more serious financial crisis within the 2025-2027 period) would be in line with all past statistics, where, with Republican governments, essentially all major crashes (as well as very important stock market highs) occurred.
Our statistical research, in which we observed that during Democratic governments, markets have never fallen more than 29 percent (which made us attribute the area of October 13, 2022, low, which was -27 percent, a very good probability of a medium- to long-term bottom).
So, May 2023 begins. And it begins with a call for caution. Until the bill also passes the Senate, we will have to go very cautiously
Meanwhile, First Republic Bank is heading for bankruptcy. Probably absorbed by some larger bank or spread among the large systemic banks that have made the pretense of being generous by depositing their money there.
Uncertainty continues, as we await FED and ECB decisions this week.
We point, still, for two weeks of uptrends, but with spikes of increasing volatility and the many ups and downs that markets have accustomed us to recently.
Ovunqude there are, in the United States, declines in price pressure. Copper prices are falling, house price growth continues to be very moderate, sometimes negative. Consumer confidence and expectations are plummeting.
So, if no one doubts that 0.25 on rates on May 3 next year, at the same time, recession risks are being felt and, therefore, inflation risks are diminishing. If the May 3 figure is as expected, it is possible that the market will benefit, although, in fact, it comes to say that it has already benefited in advance, taking into account the rise that occurred on Thursday and last Friday.
If we continue to see the next few weeks not looking good at all, and consider a rising risk for a couple of months starting in the second half of May, the current trend on interest rates, inflation, and recessionary risks, suggests a positive autumn, where the likelihood of a rally in the latter part of the year is high.
The relative high that we will see in the next 15 days will be very important. If the high of this cycle was already made, it would mean a very very weak market: not very likely. On the Nasdaq, there is the likelihood, in the next few days, of a strong bullish push, from which the S&P500 would also benefit. And if resistance in the 4200 area is overcome, the target becomes the August 2022 high.
The development of such an uptrend has time in the next two weeks, with the probable midpoint of the high between May 10 and 17.
When we start to see a high and laterality of a few days to follow, the closer the May technical expiration (Friday 19) will come and the more the market is likely to become unstable. This could happen even later in time, in June. But the symptoms will be from here within 15-20 days. The risk of instability will continue, presumably, for a few weeks, we believe at least eight.