All METARs who have taken calculus know that the slope of the tangent at the maximum of a parabola is zero.
The stock market paused last week from the rapid run-up which started in mid-June. The Fear & Greed Index was Neutral. The risk-on trade suddenly stopped in its tracks. The USD rose but stayed within the rising channel that began in mid-2021.
The entire Treasury yield curve shifted upward. There was little or no change in the 10-Year Treasury Constant Maturity Minus 3-Month Treasury Constant Maturity and 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity yields.
Oil and natgas prices are rising again.
SPX bumped against its (still falling) 200 day MA and dropped slightly. The TTM P/E ratio is off its 2020 bubble peak but still 21 vs. the historic average of 15. The Price-to-earnings ratio based on average inflation-adjusted earnings from the previous 10 years, known as the Cyclically Adjusted P/E Ratio (CAPE Ratio), was 32 vs. the historic average of 16. The stock market is still very overvalued on a historical basis.
It’s too early to see if this pause leads to resumption of a bull market (reflation of the bubble) or to another pull-back.
The stock market has been giddy and has risen about 10% from its June bottom. The July Consumer Price Index for All Urban Consumers was unchanged, seasonally adjusted, and rose 8.5 percent over the last 12 months, not seasonally adjusted. The Fed’s preferred inflation index, the Personal Consumption Index, will be reported next Friday. The markets hope that the Fed will slow its forecast increase of the fed funds rate.
The 5-Year, 5-Year Forward Inflation Expectation Rate has been in a steady channel around 2.4% since early 2021. The TIPS yield rose in parallel with the Treasury yield. The 5-year T-bill yields around 3%. GSE bonds of that duration yield 4% on the secondary market.
The METAR for next week is calm weather. There’s no news that will swing the markets – until Friday. If the PCE inflation is lower than predicted the market will take off the following week.