The S&P 500 added 2.1% last week, closing at a record. The S&P 500 has surged 147% from a 12-year low in 2009. On Wednesday, Ben Bernanke will testify before the Joint Economic Committee regarding the central bank’s economic outlook, and the FOMC releases minutes from its most recent policy meeting.
Equities: The JUN13 E-mini S&P 500 futures market is once again trading higher, this time up 5 points today to 1668. This continues an incredible 2013 rally that has reached levels today that few have called for at the beginning of the year. 1700 is getting closer and closer in sight. This market, like the rest of the financial markets, likely will be somewhat subdued before the FOMC minutes and Bernanke’s testimony occurs on Wednesday. We may see the markets find reason for profit-taking on Wednesday. The markets could have a rally if Bernanke talks up the economy as doing much better, but also says that the Fed will still keep accommodating stimulus and not scale back purchases.
Bonds: The bond market is somewhat flat today, as the markets start the week in quiet mode, likely waiting in anticipation for Wednesday’s Fed events. We still hold a target for the U.S. 30-year bond futures contract at 141. The bonds could get there quick if Bernanke or the minutes on Wednesday indicate some scaling back of bond purchases by the Fed. At some point, these bonds might start to slide even lower, mainly based on the stock market rally. This shift has been named the Great Rotation, out of bonds into stocks. We have seen the rotation into stocks, but haven’t quite seen a huge bond sell off (yet). We think this could happen.
Currencies: The euro, yen, and Aussie dollar are all having turnaround rallies this morning. The Aussie dollar has slid very far, very fast, and today it is up 59 ticks to 97.75. The yen has also stopped the slide, trading up 64 ticks to 97.56. We believe these currencies have hit short term lows and may start to consolidate from here. We believe the euro has significant downside, and believe the euro/yen spread will contract.
Commodities: Gold hit the key level of $1,340, and silver had a big spike down to almost $20. For silver, $20 is a very key support level. We believe this level will hold for the short-term, but also see the longer term potential for silver (and gold) as more downward price movement as the U.S. dollar rally potentially continues.
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