Stocks have shown a recent tendency to shake off anything remotely bearish.
The latest example of this indifference occurred on Monday, when the S&P 500, the Nasdaq 100, and the Russell 2000 all managed to close higher, despite concerning rhetoric from Fed officials.
James Bullard, president of the St. Louis Fed, expressed his belief that the Fed funds rate should rise another 50 basis points. Bullard is not a voting member of Federal Open Market Committee in 2023.
Neel Kashkari, president of the Minneapolis Fed, is a voting member of the FOMC. Kashkari also hinted at further rate hikes on Monday, stating, "If we were to skip in June, that doesn't mean we're done with our tightening cycle."
How did the Nasdaq 100 respond to these hawkish comments? By closing at a 52-week high.
The Nasdaq continues to be powered by a handful of mega-cap names, like Meta Platforms (META) . The parent company of Facebook and Instagram climbed 1.17% on Monday, despite news that the company faces a $1.3 billion fine from the European Union. Meta Platforms has gained 106.4% year to date.
In addition to the stellar performance from Meta, Nvidia (NVDA) has gained 113.36% this year. Amazon (AMZN) has climbed 37%, Apple (AAPL) and Microsoft (MSFT) have gained 34%.
The S&P 500 is on the edge of a breakout. The large cap index has formed a huge ascending triangle (black dotted lines). A close above 4200, just eight points above Monday's close, places the index at an eight-month high.
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How can markets be so sanguine in the face of hawkish rhetoric from Fed officials? The answer may be contained in the following chart.
Copper has broken down from a descending triangle pattern (black dotted lines). The breakdown occurred on heavy volume (arrows). The red metal is trading beneath its 50-day (blue) and 200-day (red) moving averages, and is just above its lowest level of the year.
Why is this chart important? Hawkish Fed officials have repeated warned about sticky inflation.
On Monday, Bullard noted that he'd prefer rates rise "sooner rather than later" because inflation remains persistently high. Kashkari described services inflation as entrenched.
Because China is the world's largest consumer of copper, the drop in copper prices could be an indication of slowing growth in that country.
Japan's Nomura Bank believes China's economy is slowing. Nomura recently cut its 2023 GDP growth forecast for China from 5.9% to 5.5%, citing a post-Covid recovery that is "rapidly losing steam". The decline in copper likely reflects falling demand, particularly for China's manufacturing sector. It's possible that global rate hikes are finally having their desired effect.
Bottom line: Copper's decline could be telling us that so-called sticky inflation is about to become unstuck. If true, that's good news for both consumers and investors.
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