It’s official; the U.S. National Debt hit the $30 trillion mark yesterday. But we will worry about that another day. As for today, we want to make hay while the sun still shines.
From feast to famine, volatility has slowed to a crawl today. Broad market internals are negative – so large-cap tech is carrying the day. I am not surprised after Google brought good news to the street last night.
Impressively, the S&P 500 conquered its 21-day and 21-week lines intraday. We will see if the lines can hold into the close. If so, the index appears to be heading for our second target, the downtrend line from the early January high. The line, and a few other hurdles, sits around 4600.
Wouldn’t it fool the most people if the market moved out to new highs from here? While it is too early to call for new highs or even the old highs, any such move would be cruel and unusual punishment for the crowd – who somewhat justifiably expect another down leg.
If the market were to maintain its bullish stance, it would likely be because inflation is a probability but not a certainty in the long term. Macroeconomics is mostly voodoo. The economy can be an incredibly complex and unpredictable system. Traders are likely more worried about the Fed making another policy mistake than they are about inflation. Russia and China are also on their minds.
As Vitaliy Katsenelson recently observed, Japan is the most indebted developed nation globally (its debt-to-GDP exceeds 260%, while ours is 130% or so). Its population is shrinking. Its debt per capita is going up at a much faster rate than the absolute level of debt. Anyone would have thought that Japan was one lightning strike away from a disastrous conflagration.
But Japanese interest rates are lower than ours. The country is mired in a deflationary environment that has lasted for decades. While cultural differences may contribute to Japan’s woes, it illustrates the problematic and humbling exercise of long-term inflation and deflation forecasting.
We don’t know what we don’t know. For now, and as we get closer to Friday’s close, the Weekly Expected Move High at 4521 could draw us back down from current levels. But for today, the tape is slow, but the weather is still bullish.
A.F. Thornton