04/21 - Market & Portfolio Update: Monetary Policy Independence, Gold & Bitcoin
All major market indices are down on China retaliation and Trump comments; Signals portfolio up 1.65% (vs. S&P500 down 3%+)
Near-Term Trend: Bearish — Key support levels to watch: 5,130, 5050, 4950, 4910 & 4830.
US markets are deep in the red today as (1) China threatening to retaliate against countries siding with the US (2) Trump continuing his campaign to fire Jerome Powell and (3) ongoing technical weakness due to the death-cross flashing last week (see here).
The S&P500 is at a major level of support as I write this (currently 5135) but MACD and RSI are both pointing to more weakness ahead. I believe we are likely to break below 5000 and potentially even re-test the lows (4835) over the next week or so for the following reasons:
Near-term bearish technical setup (death cross flashed on April 14 and historically it leads to weakness over a 15-20 day period).
Continued risk of earnings surprises to the downside and guidance uncertainty - last week United Health missed earnings in a rare and potentially foreshadowing event. Healthcare spending is often viewed as the “last to go” when it comes to pull back in consumer spending.
Trump pushing to fire Powell is sending mixed signals which will continue to spook the market - is there something Trump knows that we don’t on the state of the economy? If he gets his way and fires Powell, the stability of the US financial system may be questioned, even if Trump is able to force a rate cut. It would also lead to a sell off of US treasuries, thereby spiking yields.
So what do we do?
Here are some things to consider doing if you haven’t already:
Rotate into defensive stocks to weather the storm for the next few weeks/months - there will definitely be turbulence ahead. I’ve laid out my favourite stocks in my post here. Categories include Consumer Staples, Utilities & Healthcare.
Allocate a % of your portfolio into “safe haven” assets that could appreciate during times of uncertainty. I shared in a video that I believe the Fed is hinting at stagflationary risks and in a scenario in which that becomes a reality, the Fed may be “handcuffed” and cutting interest rates wouldn’t help. Assets that do well during these times include dividend paying stocks (I like VIG and SCHD ETFs), precious metals (i.e Gold, Silver), Swiss Francs, Japanese Yen, the Euro and…
Bitcoin. Bitcoin is pumping today as it nears its 200-day moving average. If it breaks through, the 100-day moving average is in reach ($90,885) and there isn’t much resistance above that. MACD and RSI are both painting a very bullish setup right now. Interestingly, Bitcoin’s correlation to equities appears to have “normalized” given it is up today while the equities market is down.
What I’ll be watching closely:
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