Wall Street continues its bear market rally, but risks remain on the downside
Wall Street ended higher yesterday after the Fed hinted that a slowdown in rate hikes could be coming soon. The minutes revealed that “a significant majority of participants felt that a slower rate of increase would probably soon be appropriate”, but it should be noted that “several” officials considered the terminal price to be higher than before.
Equity markets were supported by falling government yields, a weaker dollar and a strong gain in Tesla (+7.8%). The California automaker took advantage of a rerating from “Sell” to “Neutral” by Citigroup to rise nearly 8%.
The upward trend was not unusual for Thanksgiving week, so a seasonal bias was likely another supporting factor.
Wall Street may continue its near-term uptrend, but the underlying outlook remains bearish. There is a good chance that the recovery we have seen for several weeks is just another “bear market rally” and that new lows await in the stock markets given the growing risk of a global recession. In fact, between the tightening of health restrictions in China, the energy crisis and the tightening of financial conditions globally, stock markets should be increasingly under pressure in the coming months.
At the moment, a global recession does not yet appear to be priced in given the resilience of investor earnings expectations and credit spreads.
Daily price chart of Nasdaq 100 (CFD US Tech 100) – key levels