Stocks Sink As Rates And The U.S. Dollar Surge
Michael Kramer | Jun 02, 2022 01:09AM ET
The S&P 500 finished lower by 75 bps Wednesday, to close at 4,101. The index plunged following the ISM report showing the Fed has made nearly no progress in its attempt to slow economic growth or reign in inflation.
That sent the dollar and yields soaring. The weak dollar and falling rates helped push stocks higher last week. This week, the stronger dollar and rising rates are helping to sink stocks.
As long as the paths of the dollar and rates remain higher, the course for stocks may remain lower.
Again, one of the easiest ways to visualize this relationship is to look at the iShares TIPS Bond ETF (NYSE:TIP) vs. the Invesco QQQ Trust ETF (NASDAQ:QQQ).
The two have tracked each other nearly perfectly since the winter of 2018. When the TIP made new highs, the QQQ made a new high for years.
Now, as the TIP has reversed, so has the QQQ. Interestingly, the TIP made a new closing low yesterday. If the pattern continues, it would indicate that a new low for the QQQ may only be around the corner.
It doesn’t mean the QQQ has to make a new low, but given the strength of the relationship over the years, the odds seem high it does.
As hot as the banks were last week, this week they are not. JPMorgan Chase & Co (NYSE:JPM) fell by almost 2% today after its CEO, Jamie Dimon warned of an economic hurricane coming.
After the stock hit its 61.8% retracement level Tuesday, the rally could be over after forming a bearish engulfing candle yesterday. If that were the end of the rally, I would not be surprised to see the stock trading sub-$115 again.
Today, S&P Global (NYSE:SPGI) fell by 5% after it pulled its 2022 financial guidance on weak debt issuances. The stock initially fell to technical support at $310 and bounced hard to close at $332.
The momentum on the RSI looks very bearish, in my opinion, leaving me to think that $310 may be tested again soon.
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Finally, I haven’t looked at Bristol-Myers Squibb (NYSE:BMY) in a long time, and you can see the stock has been trading sideways for some time and is now making a bearish divergence with that relative strength index turning sharply lower.
There is also a gap that needs to be filled, around $70.
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