Traders run from a bear meant to signify a bear market (AI generated image.) Source: Adobe Stock
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Uncertainty reigns, and not just because Israel has reportedly attacked Iran. Cboe’s US VIX index, widely perceived as Wall Street’s “fear gauge,” hit its highest levels since October 2023 this week.

Meanwhile, US markets appear close to hitting a three-week losing streak – something of a far cry from where we were less than a month ago. Similarly, the ASX200 hit a two month low on Friday.

The ultimate threat is that the YTD rally we’ve seen on US markets, driven by Mag7 tech stocks (more on those in a moment,) might be coming to an end.

“Sell in May and go away” looms

We’re also heading into the month of May, which is when a widely-believed market maxim kicks in: “Sell in May and go away.”

The six months from October to April are, if you go back far enough, slightly better on the whole for US market returns than the six months from May til early CYQ4.

This coincides with the typical outperformance markets in the US (and here at home) clock around Christmas. Remember the Santa Rally of less-than-four-months-ago? 

There’s another reason why “sell in May and go away” could quickly become the dominant narrative replacing the YTD rally we’ve seen – those same US Mag7 tech stocks start reporting their latest earnings next week, in Week 17. 

The earnings results of those Mag7 stocks – and whether or not they beat or miss analyst expectations – are sure to greatly influence the way stocks travel for the rest of the month broadly. Then again, after the S&P 500 has smashed through something like twenty all-time-highs in the first three months of 2024, it could be even stranger still if there wasn’t a correction.

IMF warns on US debt

Meanwhile, something I wrote about recently, the International Monetary Fund (IMF) has issued a warning on ever-increasing US government debt, which is currently around US$35T (that’s USD trillion with a T.) This has also coincided with a rise in gold prices, and some analysts see a direct link. 

I’m persuaded by the arguments of one Bank of America investment strategist who suggests we’re seeing gold boosted on “debt debasement” trades.

By that theory, the gold price bull run is partially intended to be a hedge against some kind of US economic crisis. While the United States of America defaulting seems highly unlikely, perhaps the surprise gold surge is evidence of that certainty fading.

In short: the IMF has warned that the global economy is at risk from the USA’s government debt, given that – according to them – it threatens to make borrowing costs more expensive in different countries the world over.

One to keep an eye on. 

And don’t forget – we get Australian CPI inflation data next Wednesday.

Here’s the headlines that caught my eyes this week:

Australian Economy

  • Australian insolvencies are at record highs: CreditorWatch
  • RBA believes Chinese iron ore demand could have peaked
  • Australian dollar hits 5-month-low as Chinese weakness precipitates through data
  • ANZ reiterates call for November RBA rate cut

International Economy

  • IMF warns USA’s USD$35T national debt risks boosting global borrowing costs
  • World’s 3rd largest economy, Germany, reiterates it will keep trading with China
  • IMF says global yearly GDP growth by 2030 will be 2.8%
  • Market speculators are shrinking expectations for 2024 US Fed rate cuts
  • US retail sales come in hotter than expected in another blow to sentiment

Commodities

  • Citi says the current lithium rally is ‘detached from fundamentals’ 
  • Capital Economics call US$85/tn iron ore prices in 2025 as China worsens
  • NYMEX uranium prices edge back to US$90/lb – before dipping back below
  • Citi sees gold climbing to US$2,875/oz to kick off 2025

Australian Equities

  • Barrenjoey says the ‘ASX190’ is a better bet than ASX’s big miners and banks
  • Woolworths shares dip -1.5% after outgoing chief Banducci threatened with prison
  • Droneshield hits all time high above $1.10/sh as company inks deal with NATO
  • Gina Rinehart buys up stake in Lynas Rare Earths as REE splurge continues

International Equities

  • The VIX has hit a 6-month-high as certainty of US rally comes into question 
  • Chinese CATL spin-off Ampace going for Chinese home energy storage market
  • EU regulators will not investigate Microsoft’s US$13B stake in OpenAI
  • Shanghai Composite outperforms Asia midweek on strong Chinese GDP read
  • JP Morgan says markets are divorced from economic risk

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