1 Minute Market Rundown – 23rd May 2022
Trade the Extremes
GBP Squeeze Higher Continues
S&P 500 Teeters on Verge of a Bear Market
Markets that close 20% below its peak level are defined as being in a bear market. The S&P is 19% down from its peak but with the Nasdaq and Russell 2000 27% off its highs, feels safe to say we have entered a bear market and it’s only a matter of time before the S&P joins the party.
Interesting to note though that just because the S&P may enter a bear market it doesn’t necessarily mean this will lead to a recession and further losses. Black Monday (1987), Asia crisis (1998), EMU crisis 2011 and Fed tightening (2018) all saw the S&P drop more than 20% but a recession and further losses were avoided. The question we find we are asking out loud is, does the here and now fall in the category of no recession or is one impending. Whilst the FED have gone all out in their quest to tame inflation, the supply side of the economy needs to recover if we are to avoid one. Truth be told, it’s too early to make that call. However, what seems apparent to us is that the market is exhausted. We have had 7 weeks in a row of losses, sentiment as negative as it has ever been and the S&P has put a double bottom in around 3800. Trading the extremes still feels the most apt way forward.
Crypto markets continue to consolidate and hold in for now. The resistance levels are well defined at $32k and $2200 for BTC and ETH respectively. Tough to see how crypto markets don’t just trade in the narrow ranges seen of late until we get some fresh impetus for markets to break out in either direction. With the correlation between crypto markets and traditional asset classes strengthening, we expect crypto’s direction to be determined by risk sentiment. This week we see FOMC mins (Wednesday), US GDP (Thursday) and US Core PCE (Friday) – these releases will be key in determining the next leg in markets.
On the day we would be happy to sell GBP/USD rallies toward 1.2630/50.
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