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Is the sky really falling?

 In Newsletter

Issue 149

Assets Covered: SPX, Gold Futures, EUR, USD

 

Every so often, a forecaster sees a disruption ahead. While it’s tempting to be the person screaming that the sky is falling, there is very little to gain from it – especially if you’re wrong.

 

Unlike so many “permabears” (those who are perpetually calling for a fall in markets) or “permabulls” (the opposite), Complete Intelligence prides itself on being neutral. We are indifferent toward market rises and falls – we just want our clients to have a clear idea on where things are headed.

 

Which is why we always pause before publishing a forecast that calls for a notable turn in markets, but here we are. Our artificial intelligence platform – which has a demonstrated history of error rates significantly lower than consensus – is showing a pretty grim outlook for late February and March. We’re not the only ones thinking this. Here’s a chart from LPL Research showing the magnitude of falls during previous bull markets:

 

 

 

Why now? For a start, Treasury yields are screaming higher. The US Treasury 5-Year is up 33% since Feb 1, the 10 Year is up 18% and the 30 year is up 13%. Investors are looking for an alternative to a very stretched equity market and lofty commodity prices. Even cash is attractive. So, let’s look at a few possibilities:

 

 

After a 48% rise for the S&P 500 since March of 2020, Complete Intelligence expects a 9.9% fall for the $SPX over the next 3 months.

 

 

 

United States S&P 500 Stock Market Index (SPX)
CI Futures generated this chart. Book a demo to see it live in action.

 

 

For Comex Copper, we’ve seen a 66% rise since March 2020. Complete Intelligence now expects a 17.4% fall for $HG over the coming three months.

 

COMEX Copper Futures (HG1)
CI Futures generated this chart. Book a demo to see it live in action.

 

Gold ($GC1) has seen an 11.2% rise since March 2020 and Complete Intelligence is expecting a 4.1% fall over the same 3 months ahead.

 

Gold Futures (GC1)
CI Futures generated this chart. Book a demo to see it live in action.

 

As equities and commodities subside a bit, we expect the US Dollar to appreciate. The Euro has gained 9.3% on the Dollar since March 2020, but Complete Intelligence expects the Dollar appreciate 2.5% over the coming three months.

 

 

EUR/USD Rate
CI Futures generated this chart. Book a demo to see it live in action.

 

So, is the sky really falling? Maybe, but we don’t think it’s that extreme. Just be cautious. The warning signs are all around.

 

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