US Treasury Bond Yields fell on Friday after Federal Reserve Chairman Powell indicated at the (virtual) Jackson Hole Conference that the Fed could start tapering bond purchases later this year. He reasserted his view that this year's inflation surge should prove transitory. US stock markets liked what they didn't hear. Yes, taper is coming but hikes in interest rates are not on the table.
Markets are taking taper for granted and will be looking for Fed signals about how quickly it may start raising short-term interest rates. The Fed chairman cautioned it would raise rates if higher inflation rates became a serious concern and noted that premature tightening would be harmful. The Jackson Hole Conference has a reputation where Fed chiefs announce major policy changes or outlooks.
Following the Fed's guidance, the market doesn't expect rate hikes for some time to come. In this view, portfolios will have to be adjusted. As we have noted in previous reviews, large cap growth stocks have shown an inverse correlation to interest rates. Banking stocks show a positive correlation to interest rates. Metals and mining stocks are driven by anticipated inflation and supply shortages.
The NASDAQ, S&P 500, and European indices remain strategically Bullish, NASDAQ now stronger than S&P 500; Chinese and Emerging Markets declines slowing.
Equity Styles: Large Cap Growth now leads Large Cap Value: Large Caps lead Small, Mid Cap and Equal Weight Indices.
Ranked Sectors: Leaders - Real Estate, Technology, Health Care, Communication Services. Laggards - Consumer Discretionary, Industrials, Consumer Staples, Energy.
Yields of 30-year US Treasury Bond, 10-year Note while in Long Term downtrends appear to be forming bottoms. The flattening trend of the Yield Curve is slowing.
Australian Dollar, the Euro, the British Pound, and the Yen, all continue weakening vs. US Dollar.
The US Dollar is Bullish and continues strengthening after making a double bottom. Gold is choppy in a Bearish trend.