Today, the general stock market had a choppy, sideways trading kind of day. The real fireworks occurred in oil, natural gas, silver, and uranium. It looks like there is a big rotation that is starting to occur. High flying tech stocks with outrageous p/e ratios are starting to teeter while commodities are starting to come to life. The big story of the day was interest rates.
This is from the Fed. You can see that after an initial rise in rates around the beginning of the year, they began to flatten and sag down. Now we’ve hit another base and rates are starting to move higher again.
The last three days for TLT have been a bloodbath.
Is the taper beginning to matter, are investors coming to the conclusion that the Fed could be serious about reducing their balance sheet or are people getting the hint that this inflation isn’t transitory.
That’s the question. Are we beginning to witness the inflection point?
The shortages, shipping backlog, and train slowdowns are really starting to impact retailers. It is looking more and more likely that the backlog of ships will never be cleared. This will continue to put pressure on the transportation system downstream, i.e. train and truck transport. Business Insider put together a breakdown of what’s happening. You can read it here. To paraphase, China is running their ports 24/7. They are getting ships turned around as fast as they can. The US is stuck with a union that manages the port labor. They are slow and reluctant to change from their current labor policies. With this dynamic, I’m afraid the port backlog is here to stay. At this point, even if the union were to agree to a 24/7 deal, the backlog may never clear. It would take a slowing in China to give US ports a chance to catch up… which may be happening…
Goldman Sachs is cutting their GDP growth estimate for China due to an energy crisis. China has brought this upon themselves. The CCP desires clean air for the Olympics that are happening in 2022. To accomplish this, they are working on cutting down on emissions from fossil fuel power plants. Unfortunately, they’ve picked a bad time to do this as China is consuming more energy than before.
They were hyper-focused on growth and it came at a cost, the environment. Now that they have the growth, the energy demand is much more than before.
The combination of a slow-down in China plus continued congestion at the ports really puts US businesses in a hard spot. They also have to decide if they’ll be passing on their increased costs to their customers. This all leads to bad news for the general stock market. While we haven’t had any hard data to back this up, I don’t see how the S&P500 will be able to continue to climb the wall of worry. October is fast approaching and it can be a very dangerous time for Wall Street. A lot of the big panics have happened in October. The 1990 correction, the 1998 slump, the 2000 correction, 1987’s famous drop, and of course the big one, Black Tuesday 1929, all happened in October.