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S & P500, Nasdaq, Euro Stoxx, Ibex 35: US remains clearly bullish

S & P500, Nasdaq, Euro Stoxx, Ibex 35: US remains clearly bullish

After a week marked by doubts and transfers in the main indices on both sides of the Atlantic, as can be seen in the table, the month of July closed with generalized monthly advances in the main stock exchanges in the US and Europe, but with two exceptions: the IBEX 35, which has yielded 1.65% in July, closing at 8,675 points and the Russell 2000 which has yielded 3.61%.

In U.S.A The most notable advances in the month that just ended are the + 2.78% of the Nasdaq 100, the + 2.27% of the S&P 500 which, after leaving a new historical maximum of 4,429 on Thursday, July 29, has closed at 4,395 points.

In Europe It is worth highlighting the 1.97% advance of the Euro Stoxx 600, which was the best European index of the month.

The annual variation (YTD) continues to leave important advances in all the indices, in the USA they exceed 13% in any case.

S & P500, Dow Jones Ind, Nasdaq, Russell 2000, Dax Euro Stoxx, Ibex 35: annual, monthly and weekly variation S & P500, Dow Jones Ind, Nasdaq, Russell 2000, Dax Euro Stoxx, Ibex 35: annual, monthly and weekly variation

S & P500, Dow Jones Ind, Nasdaq, Russell 2000, Dax Euro Stoxx, Ibex 35: annual, monthly and weekly variation

Regarding the annual evolution of the S & P500 sectors (SPDRs), the one with the best performance to date is Energy (XLE) + 30.32% followed by Real State (XLRE) + 26.86% and in third place the financial (XLF) + 23.88%

S & P500 sectors: variation YTD, monthly and weeklyS & P500 sectors: variation YTD, monthly and weekly

S & P500 sectors: YTD variation, monthly and weekly

The evolution of the Asian indices has been very negative in July and could be pointing to an expectation of stagnation in the economic recovery of Asia, which would mean a bad anticipation of the economic recovery in the rest of the world.

SITUATION

The FED and liquidity injections, the slowdown in the economic recovery and inflation expectations are the main factors to take into account at the current moment in financial markets.

The Fed

The meeting of the Federal Open Market Committee (FOMC) that ended on July 28 did not clear up the main doubts of investors that focus on the following questions:

When will the tapering start?

It is approaching the time when the Fed can begin to reduce massive support for the US economy, but even if they talk more about it in their meetings for now, we must wait at least until September for any announcement.

Read more

Jerome Powell, the chairman of the Federal Reserve acknowledged that there has been talk of when the tapering will begin, but that they will give advance notice and that there is a long way to go for the rate hike.

Powell said at the press conference after the Federal Open Market Committee kept interest rates in a near-zero range and kept asset purchases at $ 120 billion a month, that there is still some way to go. “We are not there and we see that we have some ground to cover to get there.”

Is the economic recovery progressing at the expected pace or is it showing signs of slowing down? US GDP showed a strong recovery + 6.8% year-on-year but worse and far from the expected + 8.4% year-on-year.

If the economic recovery were slowing down and inflation expectations were no longer temporary, the macroeconomic outlook would become quite complicated. From Asia, mainly in China, the evolution of its economy shows signs of a slowdown in its recovery and if we take into account that China was the area where GDP fell the least and where the recovery began earlier, the fact that it shows signs of weakening in the recovery does not bode well for economic recovery in the rest of the world.

Will inflation be temporary or will it last longer than expected? Jerome Powell (President of the FED) was not clear, he was even contradictory in the questions they asked him after the FOMC and pointed out that inflation may not be temporary as he has stated so many times but could last longer than expected.

Powell was even contradictory and pointed out that inflation might not be temporary as he has stated so many times, but could last longer than expected: “inflation could be higher and more sustainable than expected” and said “If the trajectory of the inflation continues and continues to exceed the target, the Fed is willing to adjust policy ”.

It is hardly surprising that the Federal Reserve, which employs hundreds of economists whose job it is to evaluate the American economy, is so often wrong in its economic forecasts. The latest major flaw has been its inability to anticipate the rise in consumer prices this year.

The Fed’s Favorite Inflation Indicator (PCE Core Deflator) it rose to + 3.5% from 3.4% in May, the highest since July 1991.

Fed's favorite inflation indicator (PCE Core Deflator) Fed's favorite inflation indicator (PCE Core Deflator)

Fed’s favorite inflation indicator (PCE Core Deflator)

An important aspect to take into account is the evolution of the CRB commodity index, which is at its highest level in 6 years, 118% more than its low in April 2020.

CRB Commodity IndexCRB Commodity Index

CRB Commodity Index

What is the rise in bond prices discounting? Probably that the FED is very difficult to raise interest rates in the near future precisely due to the slowdown in the economic recovery. If we add more persistent inflation to this slowdown, the expectation of stagflation increases, which would greatly complicate the actions of the Fed in economic matters.

There are those who even think that the bond market is making a mistake, but I ask them, do you think the market is wrong? I think that the market is never wrong, the market is sovereign. We can and do make mistakes when interpreting what the market does.

If we see the following graph of the US Treasury bond against the manufacturing PMI, we see the correlation between the two over time, I am inclined to think that what they are anticipating is that the evolution of the manufacturing PMI could be worse in go ahead.

US Treasury bond vs. Manufacturing PMIUS Treasury bond vs. Manufacturing PMI

US Treasury bond vs. Manufacturing PMI

In Europe, confidence in the euro area economy is increasing as the pandemic is seen as in its final stages as vaccines are increased and restrictions lowered:

confidence in the euro area economyconfidence in the euro area economy

confidence in the euro area economy

TECHNICAL SITUATION

We are entering August, a month in which trading volume is significantly lower than in the rest of the year, which means that volatility can increase and can occur from increases to unpredictable strong falls.

At the end of July and on a monthly chart, the situation of the main US indices continues to be clearly bullish. S&P 500, DOW JONES and NASDAQ 100 continue their continued rise, marking the 6th consecutive increase. This simply implies that the uptrend could continue smoothly.

The monthly candles of the Nasdaq 100, Composite and Philadelphia Semiconductor technology indices are entering bullish convergence and are simply lacking a push to confirm the trend and clear any doubts. The market remains bullish in the long term.

S&P 500, DOW JONES Ind Average, NASDAQ 100 and Russell 2000 on monthly chartS&P 500, DOW JONES Ind Average, NASDAQ 100 and Russell 2000 on monthly chart

S&P 500, DOW JONES Ind Average, NASDAQ 100 and Russell 2000 on monthly chart

S&P 500, DOW JONES Ind Average, NASDAQ 100 and Russell 2000 in monthly chart

In the short term, the divergences that occur between indices cause reactions and adjustments without major significance that give rise to the occasional scare of little relevance and the consequence is a certain lateralization of prices that are resolved with new increases and absolute historical highs. as a closing candle.

S&P 500, DOW JONES Ind Average, NASDAQ 100 and Russell 2000 on daily chartS&P 500, DOW JONES Ind Average, NASDAQ 100 and Russell 2000 on daily chart

S&P 500, DOW JONES Ind Average, NASDAQ 100 and Russell 2000 on daily chart

S&P 500, DOW JONES Ind Average, NASDAQ 100 and Russell 2000 on daily chart

The levels to watch are the following: S&P 500 4,372, DOW JONES Ind 34,876 and 17,787 for the NASDAQ 100. Their loss would not be alarming as long as they do not lose the following levels of control shown in the charts, but they would require extreme attention.

Although the technical situation of the European indices in monthly chart is still bullish, it is not clear, it shows symptoms of exhaustion that do not imply anything while the US advances, they only show less upward strength compared to the US indices.

DAX, EURO STOXX 50, CAC 40 and IBEX 35 in monthly chartDAX, EURO STOXX 50, CAC 40 and IBEX 35 on monthly chart

DAX, EURO STOXX 50, CAC 40 and IBEX 35 on monthly chart

DAX, EURO STOXX 50, CAC 40 and IBEX 35 in monthly chart

In the daily chart there is a clear lateralization of the quotes. The major indices are struggling and being sustained by the short-term average of 50 (SMA50).

We set the first levels of control at 15,423 for the Dax and 4,056 for the EURO STOXX 50. If they lost them, you would have to pay attention to the levels 15,048 and 3,904 for Dax and EURO STOXX 50 respectively. His loss would significantly change the situation.

DAX, EURO STOXX 50, CAC 40 and IBEX 35 on daily chartDAX, EURO STOXX 50, CAC 40 and IBEX 35 on daily chart

DAX, EURO STOXX 50, CAC 40 and IBEX 35 on daily chart

DAX, EURO STOXX 50, CAC 40 and IBEX 35 on daily chart

The IBEX 35 continues with its doubts arising from the situation of the SX7R and SX7E banking sectors, which continue to condition the main advances and setbacks of the Spanish selective.

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