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16.05.2023 01:51 PM
Is it time to invest in US stocks?

Billionaire hedge fund manager Paul Tudor Jones has suggested that the Federal Reserve has halted its interest rate hikes. This could potentially trigger a strong surge in the stock market tihs year. "I definitely think they are done," Jones said. "They could probably declare victory now because if you look at CPI, it's been declining 12 straight months... That's never happened before in history."

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Paul Tudor Jones brushed off March's inflationary uptick. Earlier, US CPI rose at the beginning of spring before dipping again in April. These sudden spikes do not align with the Fed's plans to push inflation to its target rate of 2.0%. As a result, Fed members don't share Tudor Jones' optimism on future policy.

This was the sentiment expressed yesterday by Raphael Bostic, the President of the Fed Reserve Bank of Atlanta. He stated that there likely would be no rate cuts until the end of 2023 at the earliest, even in the event of a recession. "If there's going to be a bias to action, for me it would be a bias to increase a little further as opposed to cut," Bostic said in an interview to CNBC. "For me, inflation is job No. 1. We've got to get back to our target. If there's going to be some cost to that, we've got to be willing to do that."

Certainly, the central bank's decision to raise rates ten times consecutively has paid off. The federal funds rate is now at 5.25%, its highest level since August 2007. In the meantime, the Consumer Price Index has dropped noticeably to 4.9% in April from its 9% peak in June 2022.

Paul Tudor Jones said the market setup currently resembles mid-2006 right before the global financial crisis. At that time, stocks rebounded as the Federal Reserve stopped tightening monetary policy.

A recent report from Bank of America Corp. warns that a sustained economic slump in the US could hurt tech company stocks. These stocks are currently popular among investors due to the US debt ceiling crisis and significant issues in the US banking sector, which is hemorrhaging money. The bank anticipates the looming recession to harm the tech sector, much like in 2008. According to the report, investors have already funneled $3.8 billion into tech stocks in the week up to May 10. This is the largest inflow since December 2021. About $2.1 billion was pulled from financial equities, however, as banks grapple with its worst crisis since 2008.

Technical analysis suggests demand for the S&P 500 remains, and bulls can extend the uptrend. They will need to remain above $4,116 and regain $4,150. From there, the index could surge to $4,184. Another key goal would be holding on to $4,208, which would help solidify a new bull market. If the index moves downward in the absence of demand and risk of persistent high inflation in the US, bulls will have to act around $4,116. A breakout below that level would quickly push the trading instrument to $4,091, opening the way towards $4,064.

Jakub Novak,
Analytical expert of InstaForex
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