Dantes Outlook Market Podcast

Q2 Market Report

Episode Summary

Here is a brief market outlook from the trading desk. Stocks and commodities continued to rise in Q2, but upside appears limited into Q3 as seasonal weakness unfolds. For now, breakouts in cyclical and growth sectors suggests long opportunities remain for stock pickers and trend strategies. Inflation expectations appear stretched, which typically precedes a decline in commodity prices. Risk assets will likely experience near-term weakness, but could eventually hold lower support levels given long-term breakouts.

Episode Notes

• A bounce in the U.S. dollar could reduce inflationary pressures into the second-half of the year. However, upside remains limited after breaking a decade long uptrend last year. 
• Commodities, including oil and metals are testing initial resistance, while corn and soybeans suffered sharp declines recently. Pullbacks are expected to continue over the short-term, which could provide timely entry points along the broader commodity upcycle.
• The copper/gold ratio, an important gauge of risk-on vs. risk-off, is also testing resistance, but has broken above a decade long downtrend from last year.
• The stock/bond ratio appears stretched, which could trigger some Treasury shorts to unwind positions if volatility rises into Q3. 
• For now, the S&P 500 is holding support above the 50-day moving average, led by tech and consumer discretionary stocks. The growth trade should continue as the CBOE Volatility Index (VIX) drifts towards support at 12.

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