What Happened to Stocks this Week

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By James Helliwell

Hello traders

I hope you all had a good week!

Its been quite a ride these past few days, ever since Monday’s madness which saw bond yields plummet as investors rushed to buy bonds on accelerating fears that the delta variant would stymie the economic recovery. This followed the theme which I laid out in last Friday’s post where I explained how the market seemed to be concerned about the prospect of ‘peak expansion’ given ‘peak multiples’ for many sectors – most notably beneficiaries of the ‘reflation’ and ‘reopening’ trades. In case you were blissfully unaware of the chaos that followed, here’s what happened in the bond market on Monday:

The shockwaves were certainly felt by the equity market, with the S&P 500 closing down -1.5%.

Meanwhile the European Eurostoxx 50 index lost nearly -3% given its greater sensitivity to yields in recent months as part of the ‘reflation trade’.

Despite the ferocity of the sell-off, it will perhaps come as little surprise to hear that by Tuesday, the US stock market had fully recovered Monday’s losses! Whilst this left many people scratching their heads, we understood from our Checklist process that the bias for equities remains positive this month (as seen below).

The economic recovery is also red-hot, so the reaction in markets seemed more about a slowing of the rate (‘at the margin’) rather than a complete reversal towards contraction in the business cycle.

Nonetheless, it remains to be seen whether the delta variant will indeed create further disruption to the global economy (and stock market) given the unfolding developments being reported daily by the news. Rest assured, we will be keeping a keen eye on this on watching closely for a possible deterioration – or reversal – in our Checklists when we update our report for next month.

And just before we end things, I thought I would provide an update on our other focus this month – currencies. We have seen some brilliant trades shorting the Euro and Pound against the US dollar in recent weeks. Here’s the positive score that marked a reversal in the fortunes for the (until recently) beleaguered greenback, and commenced a period of outperformance.

Here you can see how the dollar has strengthened versus its major peers since the score was updated on the 28th.  

I’ll leave it there for this week, but if you would like to learn more about our methods, and join me for more analysis in real-time, check out our MDT course and Trading Club pages where you can preview everything that we cover.

Have a great weekend,

James

Disclaimer: For educational purposes only. Even though we do our best to provide reliable data, you should not trade based on this information.

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