It’s increasingly looking like the perfect storm of irrational exuberance. The Fed’s easy money policy is providing a never-ending stream of confidence to investors. But how long does it last?
The Fed has a history of creating asset bubbles (think Tech in 2000, subprime mortgage disaster in 2008) and now?
Call it the coronavirus spending bubble. We’ve got everyone and their cousin buying stocks and that’s great — so long as it lasts.
Watch the yield on the ten year treasury bond for signs of a rotation. It’s trading with a yield of nearly 1.6% at present and therefore, still in record low territory…meaning?
The rally gets to live another day.
Copper Racing to Historic High
Copper is continuing its Monday surge towards $10,000 with its price on Tuesday jumping by 2.2% to $9,965 on the London Metal Exchange. Copper, a key indicator for economic growth since so much is needed for building, is nearing the all-time high of $10,190 set in February 2011.
Why? Well, for starters – the Fed’s easy money policy and the economic recovery everyone is cheering on. Meanwhile, concerns over Chile’s copper supply has helped lift coppers, with mining unions and port workers threatening major strikes over pension reform.
And, if the U.S. economy is to grow as much as predicted, and if Biden is to spend as much as he hopes, then the price of copper and other metals will continue their upward trajectory.
Watch For U.S. GDP Data
U.S. GDP for the first quarter will be released Tuesday at 10am and will likely have a serious effect on market sentiment. If the numbers are good, investors will likely double-down on the economic recovery even more.
Thanks to $1.9 trillion in stimulus money, economists predict an annualized growth rate of 6.8%, up from the 4.3% growth rate in the fourth quarter of 2020.
The Fed: No News is Good News
Investors will also be tuning in for the two-day Federal Reserve policy meeting starting on Tuesday. The Fed has already primed investors to expect no major changes in policy, so it’s unlikely there will be any serious upsets.
As such, no major news from the Fed is effectively good news for bulls — assuming U.S. GDP data comes in strong.
Commodity prices surge
Copper isn’t the only commodity seeing upside.
Palladium is also surging, driven by rising demands from automakers and (again) concerns over supply.
Stocks to Watch
Keep an eye on shares of Tesla which reported first quarter profit that beat expectations (thank you, bitcoin!) despite sales being slightly lower than anticipated.
Shares of Gamestop are back in focus amid news the company completed its “at the market” stock offering for 3.5 million shares at $551 million.
Hasbro shares are lower in the premarket amid news the company topped earnings forecasts but came in short on revenue.