Fed means what it says - “whatever it takes“

The S&P 500 had its best August month since 1986, thanks to the Big Tech companies. Big Tech actually rules the world of money. Apple, Amazon, Alphabet (Google), Facebook and Microsoft account for almost a quarter of the S&P 500 market cap. The life outside of the digital world is becoming smaller.

To understand this more better, this is what Bank of America had to say “the market capitalization of US tech stocks is now greater than the value of the entire European stock market. “Last Thursday, the major tech stocks hit $ 9.1 trillion in value, while all the European stocks put together are worth $ 8.9 trillion.

The pandemic has changed our lives in many ways but the biggest change has been caused by these digital companies. A lack of understanding or comprehending this everyday phenomenal in our day to day lives has been the failure of most experienced classical economists, analysts and fund managers.

On Thursday, Fed Chairman Powell made it very clear that he is going to take a risk on inflation. He doesn’t think that raising interest rates isn’t the right thing to do. Indirectly, he is telling us that the recovery will be built around unlimited stimulus.

Actually, it is a big departure from the previous stance on price changes and monetary policies. Powell does not believe in the tough love shown by his predecessor Volker, at least for now. I know the mantra is not to fight the Fed. I also know the Fed can do all the stimulus that they want and has the power to lend but they cannot spend it.

It all boils down to one thing, CONFIDENCE. When confidence is lost, the Fed “put” will fail. The last time I checked the markets are much bigger than the Fed. Is the US going the way of Argentina, Venezuela and Zimbabwe? We don’t know. The Fed is more in a revenge mode to win this game and there is a long way to go. Only time will tell.

Gold benefited on this news but we will have to see how this will play out eventually. If the fear of inflation grips the markets the Fed can stay where they want to but the markets will do what they have to.

After being a bit late to the party, Walmart’s online sales surged 97% to reach record levels. Walmart’s new membership program is set to rival Amazon Prime. They are also in talks with Microsoft to monetize on the TikTok base, if at all Microsoft is getting that deal.

Equities

Equities clearly maintained its bid tone throughout last week and is strong this morning as well. All I can see is that a channel line resistance going back to 2009 exits around 3540.

Bonds

As expected the bonds made the tumble. It traded down to 174^12. Retracements could be capped around 177^20 before its next leg of the down move. Initial targets are close to 170.

Euro

Nothing significant has changed in the Euro but it has not played out the way we expected that it would. Resistances around 1.1920 to 1.1930 are important. We are still looking for a move down to 1.1500 eventually.

Gold

Currently Gold has exceeded the maximum retracement level we expected up i.e. to 1974. It doesn’t change our view on gold. Will wait to see more price action today. A break below 1903 should give us more confidence to stay short.