The S&P500 bounced about 0.85% last week. Volume was light and volatility, as measured by the VIX index, inched back down slightly.
US macro news was mostly disappointing last week. The Empire State manufacturing survey missed badly. The housing market index also missed. Housing starts came in lower than predicted. Initial jobless claims were worse than expected. The Philly Fed business outlook survey missed. And PMI composite flash also missed. On the positive side of the ledger, industrial production beat slightly. Leading indicators beat expectations and finally, existing home sales came in higher than predicted. But the overall mix of results was certainly more negative than positive.
In terms of technical analysis, last week’s gain in the S&P500 means that the downward momentum on the short-term charts (daily resolution) is waning and that another upward move can be expected. On the longer-term charts (weekly resolution) the upward momentum is still intact and while not as strong as it was in the winter months, it’s still allowing for more increases…despite the fact that prices are also stretched to the upside by a large degree.
Finally, let’s look at commodities again. Why? Because their prices reflect the overall health of the global economy. If it’s growing at a reasonable rate, then commodity prices would climb. If it’s stagnating, then commodity prices would generally be expected to fall or at least not climb.
So what are key commodity prices doing today? As measured by DBA (a respected ETF that tracks most major industrial commodities), prices today are at—not near—but actually at lifetime lows. This is not a good sign for global economic growth today. And it also strongly contradicts the generally elevated equity prices in the US and in Europe today, which are at or near lifetime highs.
Sooner or later these two measures will converge—either commodity prices will soar back up to meet stock prices, or stock prices will climb down substantially to meet the depressed commodity prices.