May 25, 5:00 pm EST
As we head into the long holiday weekend, let’s look at some key charts.
First, just a week ago, the U.S. interest rate market was spooking investors, as 10-year yields were hanging around 3.10%. The fear was, would 3% yields quickly turn into 4% yields, and hit economic activity.
As of today, we’re trading closer to 2.90% again, back below 3%.
But you can see, we run into this big trendline that represents this ascent in rates for 2018, which also reflects the outlook of a hotter economy, thanks to tax cuts (fiscal stimulus).
Bottom line here: The concern in interest rates is speed, not trajectory. The trajectory should continue to be UP, which is a signal that the economy is improving, and finally gaining the tracking to perform at trend, if not better than trend growth. The concern about ‘speed’ should be far less than it was a week ago.
Next, here’s a look at the S&P 500.
You can see in the chart above, we’ve broken the downtrend of this correction cycle. The longer-term trend is UP. And this bull trend started, not coincidentally, at the bottom of the oil price crash in 2016, when global central banks stepped in with measures to stem the slide in confidence.
So, we’ve had a healthy 12% correction in stocks, we’ve held the 200-day moving average, we’ve maintained the longer-term trend, and we’ve broken out of the downtrend of the correction. Small cap stocks have already returned to new record highs. And we have an economy on pace to grow at 3% this year or better, with corporate earnings expected to grow at 20% for the year. So, the second half of the year should be very good for stocks.
Have a great Memorial Day weekend!
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