It has been an interesting week for the S&P 500 index (($INX). After posting a new all-time high of 6,920.34 the last week of October, the Index has fallen to a low of 6,574.32 this week (Tuesday, October 18), a drop of 346.02 (5%). While still a long way from the 20% level that marks a “bear” market, from a technical point of view, the Index took out its previous 4-week low of 6,631.44 from the week of October 3. What does this tell us? According to John J. Murphy in his book “Technical Analysis of the ...

Economic Impact - The White House economic advisor Hassett stated that the government "shutdown" could have a far greater impact on the U.S. economy than previously expected, potentially causing long-term damage to government efficiency and leading to a slowdown in Q4 GDP growth [1] - U.S. Treasury Secretary Basant indicated that if the "shutdown" continues, economic growth in Q4 could be halved [1] Federal Reserve Insights - Federal Reserve Vice Chairman Jefferson suggested that the Fed should be more cautious in future policy actions as interest rates are closer to neutral levels [2] - New York Fed President Williams mentioned that the Fed may soon need to expand its balance sheet through asset purchases to meet liquidity needs, although this does not indicate a change in monetary policy stance [2] - St. Louis Fed President Bullard projected that monetary policy is in a moderately tight to neutral range, with 50 to 75 basis points of policy adjustment space remaining if rates decline further [2] Consumer Confidence - The preliminary consumer confidence index from the University of Michigan for November is at 50.3, marking the lowest level since June 2022 [3] Global Market Dynamics - The Dow Jones Industrial Average rose by 0.16% to 46,987.1 points, while the S&P 500 increased by 0.13% to 6,728.8 points. The Nasdaq Composite fell by 0.21% to 23,004.54 points [4] - COMEX gold futures rose by 0.42% to $4,007.8 per ounce, and silver futures increased by 0.57% to $48.225 per ounce [5] Oil and Bond Market - The main contract for U.S. oil rose by 0.69% to $59.84 per barrel, while Brent crude increased by 0.47% to $63.68 per barrel [6] - The 2-year U.S. Treasury yield rose by 0.43 basis points to 3.560%, the 5-year yield increased by 0.52 basis points to 3.682%, the 10-year yield rose by 1.54 basis points to 4.097%, and the 30-year yield increased by 2.04 basis points to 4.699% [6]

Core Insights - The benchmark index has maintained a position above its 50-day moving average for 133 sessions, marking the longest streak since 2007 [1] Group 1 - The streak of 133 sessions nearly came to an end on Friday [1]

Market Overview - The S&P and NASDAQ indices are experiencing strong trends and momentum, particularly in a seasonally bullish period during November and December [3] - There is a notable divergence in market internals, with 9% of the S&P hitting a 52-week low and 25% of the market within 10% of a 52-week low, indicating underlying weakness [4] Technical Indicators - The S&P has not touched the 50-day moving average in 145 trading days, marking the third longest streak since 1990 [2] - A potential test of the 50-day moving average is anticipated, with expectations that the S&P could reach around 6,400 to 6,500 before conditions are fully washed out [5] Sentiment Analysis - The put-call ratio is at year-to-date lows, suggesting a lack of interest in hedging and indicating complacency among investors [6][7] - The National Association of Active Investment Managers reported an exposure level of 100, the highest since July of the previous year, reflecting a potentially euphoric sentiment [8] Cryptocurrency Insights - Bitcoin is hovering around the psychological level of $100,000, with a previous support level at $110,000 now broken [9][10] - There is a noted relative weakness in Bitcoin compared to the NASDAQ, which raises concerns about its performance [11] Gold Market Analysis - Gold has seen a significant run, up about 51% year-to-date, but is currently extended and may be setting up for another leg lower [14] - The price of gold reached about 30% above its 200-day moving average recently, indicating a need for consolidation [13]

Core Insights - Gold is currently experiencing a strong rally, with prices surging nearly 50% in the past year, driven by factors such as geopolitical tensions, low interest rates, and inflation concerns [2][9] - The S&P 500 has shown a 12-month total return of around 16%, which is solid compared to its historical average of 10% [2][4] - Gold serves as a hedge or insurance, while stocks are viewed as growth engines, with stocks typically recovering more quickly from downturns compared to gold's prolonged periods of inactivity [1][7] Historical Context - Historical data indicates that gold often experiences long periods of decline after reaching peaks, such as the US$ 850/oz in 1980 and US$ 1,900/oz in 2011, while the S&P 500 has long-term average annual returns of around 10% [4][5] - In instances of stock market corrections (10-20%), recovery tends to occur more rapidly than gold's extended dormancy periods [5][6] Investment Strategy - Investors acquiring gold should view it as insurance, accepting the possibility of flat returns during improving conditions, while stock investments are aimed at growth, with a historical tendency for quicker recovery [6][7] - A balanced investment strategy may involve allocating resources to both gold for protection and stocks for growth [6] Future Considerations - The performance of gold and stocks in the coming years will be influenced by inflation, interest rates, global growth, and investor sentiment [7][9] - If real interest rates remain low or negative, gold may continue to rise, but a robust global economic recovery could lead to stagnation in gold prices as investor focus shifts back to growth assets [9]

Group 1 - The U.S. Senate failed to pass a funding bill for the 11th time, with a vote of 50 in favor and 43 against, not reaching the required 60 votes [1] - The U.S. National Nuclear Security Administration has begun mandatory furloughs for most employees, marking the first time this has occurred since its establishment [1] - The U.S. and Australia signed an agreement to enhance cooperation on rare earths and critical minerals, aiming to streamline approval processes for mining and processing facilities [1] Group 2 - Argentina's central bank announced a $20 billion currency swap agreement with the U.S. Treasury [2] - The Bank of Korea has not considered a currency swap with the U.S. Treasury, according to its governor [3] Group 3 - The CFETS RMB exchange rate index fell by 0.24% to 97.08, while the BIS currency basket RMB exchange rate index decreased by 0.36% to 103.07 [5] - The Dow Jones Industrial Average rose by 1.12% to 46,706.58 points, and the S&P 500 increased by 1.07% to 6,735.13 points [5] Group 4 - COMEX gold futures increased by 3.82% to $4,374.30 per ounce, and silver futures rose by 2.59% to $51.40 per ounce [6] - U.S. oil futures fell by 0.38% to $56.93 per barrel, while Brent crude oil futures decreased by 0.57% to $60.94 per barrel [7]

Group 1: Stock Market and Economic Impact - The stock market is not the economy, but the recent rise in American share prices has coincided with increased consumer spending, suggesting a potential link between stock market performance and economic activity [3][4][5][6] - The concept of "reflexivity" by George Soros indicates that asset prices can influence economic fundamentals, which in turn can affect asset prices, creating a cyclical relationship [7][8] - Historical studies show that rising asset prices, particularly in housing, can lead to increased consumer spending, with a $1 increase in housing wealth resulting in a 2 to 6 cent increase in spending [9][10] Group 2: Current Economic Conditions - The American housing market is currently struggling, with home sales down by one-third compared to 2021 due to higher mortgage rates, which limits the potential for increased consumer spending based on housing wealth [11][12] - Despite the housing market's decline, the stock market has seen significant gains, particularly in technology sectors driven by AI-related enthusiasm, leading to high valuations across various companies [13][14] - Wealth effects from rising stock prices may be less pronounced than those from housing, but the surge in retail investing through platforms like Robinhood could amplify the impact of stock market gains on consumer behavior [15][16] Group 3: Wealth Distribution and Spending Patterns - Wealthier individuals tend to have a higher proportion of their wealth in stocks compared to poorer individuals, which may lead to a disproportionate benefit from rising stock prices, although their spending increases may be muted [15][16] - The percentage of stock ownership among lower-income households has increased significantly, from 3% in 1989 to 17% in 2022, indicating a broader distribution of stock wealth [15][16] - The concentration of wealth among the affluent may explain certain economic trends, such as faster spending growth among the rich compared to the general population [17] Group 4: Future Economic Outlook - Goldman Sachs estimates that wealth effects could boost annualized consumption growth by 0.3 percentage points in Q3 of this year and 0.2 percentage points next year, with potential increases if stock and home prices rise significantly [18][19] - Concerns exist regarding the sustainability of wealth effects, as falling stock prices could negatively impact consumer spending, especially given that household wealth is nearly six times GDP, a record high [20][21] - Historical precedents, such as the dot-com bubble burst, highlight the risks associated with high stock market valuations, although recent data shows that consumption growth remained positive even during market downturns [22]

Market Analysis - The S&P 500 Index (SPX) is currently facing a potential pause or inflection point at the 6,760 level, which is approximately 10% above the previous all-time closing high in February 2025 [1][3] - Recent trading activity has shown a short-term overbought condition as the SPX approached the 6,760 level, leading to profit-taking among bullish investors [3] - A significant sell-off occurred following President Trump's announcement regarding potential tariffs on China, which has reignited tariff uncertainty in the market [4] Volatility and Speculation - The net short position among large speculators on CBOE Volatility Index (VIX) futures is at its highest since August 2022, which historically preceded a 10% decline in the SPX [7] - The VIX surged higher as the SPX sold off, indicating that large speculators were positioned for lower volatility, marking the largest bet on lower volatility in over three years [7][8] - An unwind of the short volatility trade poses a risk, especially with the SPX closing below its 30-day moving average, which could lead to further selling in the stock market [8] Sentiment and Market Dynamics - The VIX has shown two peaks around the late-May closing high, suggesting potential volatility selling opportunities that could temporarily halt the VIX's advance and the equity market's selloff [9] - A close above 22.30 on the VIX could signal further increases in volatility and declines in equity prices in the coming weeks [12] - If short-term traders interpret the recent selloff as a "risk-off" cue, it may lead to reduced exposure from fund managers and increased put buying relative to call buying, indicating potential market weakness [13] Technical Indicators - The SPX's close below its 30-day moving average raises concerns about correction risks, similar to previous instances in July 2024 and February 2025 [14][15] - The 50-day moving average, located only 22 points below the recent SPX close, may provide immediate support if the SPX continues to decline [15]

Core Insights - The Federal Reserve's October meeting silence period will begin next week, with Chairman Powell set to deliver his final public remarks before the silence on October 15 [1] - Market focus includes potential restructuring of the FOMC due to the new Fed Chair nomination, the impact of a weak U.S. labor market on front-end Treasury yields, and the long-term effects of global "de-dollarization" consensus on the U.S. dollar exchange rate [1] - The forecast suggests a continued weak dollar until the end of 2026, with a potential interest rate cut exceeding expectations by 75 basis points in Q4 2025 [1] Market Summary - Major U.S. indices experienced significant sell-offs due to escalating trade tensions, particularly in response to U.S. tariff comments on China [3] - The S&P 500 index fell by 2.7% to 6,549.5 points, the Dow Jones by 1.9% to 45,453 points, and the Nasdaq 100 by 3.5% to 24,175.75 points, indicating a broad market decline [5] - The VIX index surged as fear and uncertainty increased, while U.S. 10-year Treasury yields declined due to safe-haven demand and expectations of Fed easing [5] Commodity and Currency Movements - WTI crude oil saw a slight rebound from recent lows amid hopes for trade easing [4] - Gold futures surged to historical highs driven by inflows of safe-haven funds and rising rate cut expectations [6] - The dollar index remained stable due to safe-haven demand, while gold showed strength amid these conditions [9] European Market Dynamics - Despite credit rating downgrades in countries like France, European markets displayed resilience, particularly benefiting financial stocks amid regulatory and capital relief expectations [7] - Major European indices, including DAX and CAC, showed general weakness, unable to fully escape global sell-off pressures [9]

Core Insights - Gold is currently signaling extreme caution as it outperforms all major risk assets, indicating a potential market correction ahead [1][5][11] - The price of gold has reached $4,000 an ounce, with significant inflows into ETFs, suggesting a growing interest in gold as a safe haven [2][10] - Concerns are rising among investors regarding the sustainability of gold's price increase, with some experts labeling it as a bubble [3][4] Market Dynamics - Gold is viewed as overextended, with its current valuation being the highest since 1979, raising alarms about potential market corrections [1][5] - The volatility of gold compared to cryptocurrencies like Bitcoin is notable, with Bitcoin trading at 2 to 3 times the volatility of gold since 2021 [4] - The S&P 500 is currently about 1.66 times the price of gold, which is historically high, suggesting that U.S. stocks may be overvalued [8] Investment Sentiment - There is a growing sentiment among investors to exit positions in assets that have appreciated significantly, with gold being one of those assets [5][11] - The current positioning in gold futures shows that about 33% of total open interest is net long, indicating that the market is not excessively overextended yet [10] - Central banks are actively buying gold, which supports its price, but caution is advised as historical trends suggest that when gold becomes this stretched, it is prudent to be cautious rather than greedy [9][11]