S&P500 shines despite a tumultuous start to 2021
Tony Sycamore January 13, 2021 1:15 PM
While on holiday over the past week, it allowed me to watch from a distance the dust settle after a tumultuous first week of the New Year.
For markets, at the heart of the matter is the surprise win by the Democrats in the Georgia Senate run-offs, which brings with it the promise of even more fiscal stimulus and triggered a technical break higher in US 10-year yields, a development we wrote about here.
Since that article, US 10-year yields have rallied another 14bp, taking gains in January to 28bps. This has raised fears that higher rates might present a threat to equities, as they did in the last quarter of 2018, when a 45bp rise in yields, triggered a 20% decline in the S&P500.
However, as made clear by the four Fed speakers on the wires overnight, Mester, Bullard, George, and Rosengren, it will be some time before the Fed considers any tapering measures during the current cycle.
This is in line with the Fed's aim to see inflation rise while continuing to suppress nominal interest rates. Thereby keeping real interest rates pinned at deeply negative levels to help deflate away ballooning government debt.
Along with a supportive fiscal environment, the backdrop therefore remains supportive for the S&P500 in 2021, despite concerns surrounding the future regulation of “Big Tech” companies following the Democrats win in the Georgia run-offs.
Technically, the ability of the S&P500 to reclaim and close above the trend channel resistance overnight keeps the January 7 break higher intact. Providing the S&P500 remains above support from the overnight 3768 low, the expectation is for prices to extend towards the next upside target at 3900, with upside risks towards 4000.
Keeping in mind, should the S&P500 fall much below 3768ish it would warn the January 7 break higher has failed for now and the risks are for a deeper pullback towards near term support 3630/20.
Source Tradingview. The figures stated areas of the 13th of January 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.