Stocks took a step back today, pausing a record-breaking rally as investors prepped for another big week of data. This includes testimony from Federal Reserve Chair Jerome Powell and the latest jobs report.
The S&P 500 stayed close to unchanged after wrapping up Friday with its 16th win in the past 18 weeks. The Dow Jones Industrial Average dipped by about 0.2%. Similarly, the Nasdaq Composite dropped by 0.2%.
The recent surge in stocks has been fueled by a relentless rise in tech, driving the Nasdaq Composite to achieve a new all-time high after a long wait. This tech boom, especially Nvidia’s swift climb to a $2 trillion valuation, has sparked bubble fears. However, some analysts aren’t as concerned.
Also today, Bitcoin continued its upward trajectory, surpassing $66,000 and inching closer to its peak. Meanwhile, Japan’s Nikkei 225 surpassed the 40,000 mark for the first time.
The upcoming week could bring a reality check for the optimism surrounding the market. Powell’s upcoming Congress testimony on Wednesday and the jobs report due out on Friday will be crucial in determining the Fed’s next moves on interest rates and providing insights into the US economy’s direction toward either a soft landing or stagflation.
In other news, the EU’s antitrust regulators hit Apple with a nearly $2 billion fine over its App Store policies affecting Spotify and other music streaming services, causing Apple’s stock to fall by 3%. This came as a shock for the market’s (former) top stock, which has simply not joined in the recent tech boom in the slightest.
That might be due to the market calling the Fed’s (and economy’s) bluff. Stocks like AAPL just aren’t in a great spot anymore with every bull narrative – disinflation, soft landings, rate cuts – crumbling while giving way to continued AI exuberance.
The base case for bulls was that inflation would come down while the Fed slashed rates in a hurry. But with the latest inflation data revealing unexpectedly persistent price increases, particularly in acyclical price categories, it seems the market is starting to question the Fed’s narrative.
Gold is nearing record highs, signaling a breakout. Bitcoin is also climbing back toward a new high as well.
This raises the question: is inflation truly under control, or are we seeing something different with our own eyes?
It’s worth mentioning that the impact of last year’s significant financial easing is beginning to diminish, which isn’t ideal timing for the current political climate.
And let’s not forget, the Fed claims to be apolitical. Surely, they wouldn’t consider rate cuts in an election year to boost market sentiment, would they? The market is leaning toward a “throwing in the towel” approach to inflation from the Fed. If that turns out to be the case, Bitcoin, gold, and other commodities could be set for an absolute moonshot, even if equities continue to climb, too.
