Geopolitics and Inflation Threaten to Derail Booming Stock Market

• The S&P 500 index achieved its best first quarterly performance since 2019.
• Economic data, such as low unemployment and GDP growth, indicates positive conditions for corporate profitability.
• Geopolitical conflicts and rising bond yields contributed to market fluctuations in April.

Via Metal Miner

Although the beginning of the year offered mixed signals for the global economy, US markets today continue to experience positivity. Prices for general markets witnessed an uptrend in late February, followed by a continuation in March and a reversal in April. Fueled by buyer sentiment, the S&P 500 index notched its best first quarterly performance since 2019, ending the month of March at all-time highs. Meanwhile, recent economic data defied recessionary fears, with unemployment remaining shockingly low.

Other factors, such as GDP growth pointing to the upside, remain fertile grounds for corporate profitability in the near future. However, analysts continue to pay close attention to the Fed and its efforts to curb inflation, as these struggles raise questions on the pace and timing of future policy changes.

Furthermore, US markets today are constantly fluctuating. Get weekly updates on market, commodity and metal market trends to make strategic sourcing decisions. Opt into MetalMiner’s weekly newsletter.

Waiting for a Dovish Fed

Despite the positivity, geopolitical conflict and some government data have recently turned the tables on indices. Investors entered April anticipating a clear signal from the Fed regarding a “pivot.” But while Fed chair Jerome Powell reiterated the organization’s commitment to curbing inflation, the lack of a definitive strategy and timeline for the dovish pivot likely contributed to the market retracing in late April.

Current market price action for the NASDAQ and S&P shows US markets today trading below their March ‘24 swing low. Aside from the Fed’s lack of a clear tightening strategy for monetary policy strongly, rising yield bonds and tech sector turmoil also contributed to April’s downside move.

Furthermore, semiconductors saw significant declines as the PHLX semiconductor index (SOX) dropped 4.1% to a two-and-a-half-month low, which drove indices to new lows. Communications services sector also experienced weakness. Together, these performances ultimately brought the S&P down to a 5.5% record close, over the 10% threshold traditionally viewed as a correction.

Conflict, Precious Metals, and US Markets Today

Current geopolitical conflicts have also driven precious metals and commodity prices into a volatile state. With equity markets reacting to the Iran-Israel conflict, precious metals such as gold and silver sought significant monthly gains. Gold on US markets today continues to trade over $2400/oz as investors seek out the safe haven asset amid heightened tensions.

Silver prices also reached new levels for the year, with prices nearing their 2021 high. Although silver prices did trade in an uptrend continuation, they did not quite break the long-term range necessary to signal an all-time record.

Meanwhile, the dollar index for the month of April showed mostly bullish price action. With the current price over $106.25, analysts expect equity markets and stocks to continue downward, especially as the dollar index pushes towards its October 2023 high of just over $Z107.

This current trend mainly stems from traders and market participants speculating that the Fed will leave current rates as is to avoid a resurgence of inflation. In fact, stronger-than-expected CPI data served to bolster this point of view among investors. Meanwhile, those same investors and other market participants will continue to watch the conflict in the Middle East closely in terms of volatility.

Forthcoming Government Data Could Signal a New Direction

The release of certain government data later in the month will also impact the current trend for index prices. March new home sales, durable goods, pending home sales, PCE prices, and the Employment Cost Index are all expected to come out in late April, which could bring further sentiment to the market on either side.

Overall, prices for indices reached new lows for the year, signaling a rise in potential volatility due to geopolitical conflict, heightened fear of inflation, stronger-than-expected government data, and a rising dollar index. Of course, all of these factors continue to play a huge role in the movement of US markets today. For these reasons, investors and market participants will want to watch market bias closely.

That said, prices would need to create a new range and trade in a clearer direction to to indicate market bias for Q2-Q3. However, global equity markets will continue to provide mixed signals as geopolitical conflict ensues and strong economic data remains.

By Jimmy Chiguil

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