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The American stock indices seem to be reluctant to enter a bear market

The American stock indices seem to be reluctant to enter a bear market

Indices rose sharply after six consecutive weeks of declines and after almost a week of threatening to "officially" enter the bear market

The increases were led by major technology companies such as Apple and Microsoft, stocks that have suffered heavy losses throughout this year. They are no longer in the overvalued zone, along with the shares of oil companies and banks.

Despite this encouraging start to the week, the most widespread opinions in the market are still not very optimistic. The idea that the Federal Reserve could save the market if the losses continue, through the so-called "Fed put,” backing off its intention to raise interest rates aggressively, seems not credible given the high inflation level. Although it may happen if the economy shows signs of deep weakness in the coming months and inflation shows no signs of getting worse. This could mean that the Fed does not need to reach the interest rate levels that the market is already pricing.

Treasury bond yields partly reflect this possibility after retreating from multi-year highs of 3.20% in the ten years bond more than 30 bps.

Currency

As is usually more common in the foreign exchange market, this possibility is anticipated more directly. The US Dollar continues to lose ground due to the drop-in market interest rates. EUR/USD hit another one-month high yesterday at 1.0690 and is technically paving the way for further advances towards levels near 1.0800. In this case, Lagarde's statement announcing rate hikes for July has contributed to the strength of the single currency and surprisingly good data from the German IFO, which, for the moment, shows no signs of weakness in the German economy.

One asset that benefits from the weakness of the US Dollar is gold. The yellow metal is inversely correlated with the Dollar and is being pushed higher this time than by inflation expectations, as was the case in the first two months of this year.

Technically, gold is at an intermediate resistance zone at $1856/ounce, which, if broken above, would put it on track for the next upside target of around $1900 per ounce.Interfaz de usuario gráfica, GráficoDescripción generada automáticamente

Sources: Bloomberg, Reuters

This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.

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