The Slope is Still Beari

Growing fears in Wall Street markets that the Fed is nowhere near ending its war against inflation — let alone pivoting — has continued to burn bond investors who had once bet on rate cuts this year. 

• The strongest tendency for the performance of the gold (XAU/USD) price is still bearish, as the bears moved prices toward the support level of $1831 an ounce yesterday.
• The US dollar is still the strongest with expectations of raising US interest rates in the coming months, especially since the US economic performance was not affected by the successive rate hikes.

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Growing fears in Wall Street markets that the Fed is nowhere near ending its war against inflation — let alone pivoting — has continued to burn bond investors who had once bet on rate cuts this year. And as traders ramp up their bets on the Fed, US yields have reached new highs for 2023. The latest to join the so-called “everything rally” — stocks — is now giving signs of running out of steam.

In a sell-off that engulfed every major group in the S&P 500, the measure wiped out its monthly advance and headed for its worst decline since mid-December. More than 90 percent of its shares fell. Tech stocks led the losses, with the Nasdaq 100 down nearly 2 percent. The Cboe’s volatility index, which was stubbornly low earlier this year, jumped.

While recent economic data suggests the US may be able to avoid a recession, a hawkish Fed and higher earnings expectations make risk-return on equities look “very bad,” Morgan Stanley’s Michael Wilson said. This does not bode well for the market after a sharp rally that left stocks at their highest levels since 2007 as measured by the equity risk premium.

“It’s a phase where stock markets feel like they’re a bit overdone given where we are right now,” stated Liz Young, investment analyst at SoFi, told Bloomberg Television.  She added that the Fed still has more to do, and we all know the long and volatile delays that monetary policy changes require to work their way through the economy.

Others on Wall Street have also warned that the stock recovery may have gone too far.

Mislav Matejka of JPMorgan Chase & Co said bets on resilient economic growth and the Fed’s pivot are premature. Michael Hartnett an expert at Bank of America Corp, sees the S&P 500 falling to 3,800 points by March 8 – meaning a decline of about 7 percent from its last close. Wilson is more pessimistic and sticks to the view that the index could slide as high as 3,000 – down 26 percent from Friday – in the first half of 2023.

There is also the fact that strong economic data continues to be problematic as far as Fed policy goes. Indeed, stock markets were pressured on Tuesday even after data showed business activity in the US stabilized in February as the services sector regained ground, suggesting a strong economy is keeping some pricing power intact.

There is no change in my technical point of view regarding the performance of the gold price, only the performance on the daily timeframe chart. The bears are stronger and the prices are expected to move further down to the nearest support levels for the current trend of 1826 and 1800 dollars, respectively. The last level will deepen the movement of the technical indicators toward strong oversold levels. On the other hand, over the same time period, the bulls will not control the trend again without moving toward the resistance level of $1885 an ounce.

The gold (XAU/USD) price will be affected by the level of the US dollar, in response to the announcement of the contents of the minutes of the last meeting of the US Federal Reserve.

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