As you most likely know, last Friday’s strong jobs report – which showed 224,000 jobs created in June – has caused a bit of unease across the market. With investors now salivating over the prospect of a rate cut, robust economic data has come to be viewed with disdain. After all, who wants a strong economy when we can have asset-price juicing stimulus instead?
It’s hard to believe, but our current economic expansion is nearly 10 years old, and will soon become the longest economic expansion on record. However, it has also been the weakest of the 11 expansions that have taken place since 1949. Is this a coincidence?
We’re going to mix things up this week and begin our discussion with gold, which has finally broken out to the upside from a multi-year consolidation pattern. As you can see in the weekly chart below, gold has climbed above long-term resistance near 1375, and completed a bullish breakout of its ascending triangle pattern.
Imagine you’re huddled down in a bunker, with the enemy approaching, and you only have nine bullets left. Do you fire a preemptive shot or two, hoping it will deter the enemy? Or do you save those bullets and wait patiently until you’re sure an attack is imminent? That’s the situation the Federal Reserve is facing right now.
It’s frankly astounding to me how much power the Federal Reserve holds over the psychology of market participants. One reassuring comment from Jay Powell can send the market 5% higher in a week, while an offhand comment, such as we saw in October, can throw the market into a severe correction.