The Dow Jones closed at record high but the S&P 500 is lagging. Another drop in Facebook (NASDAQ:FB) shares weighed on the S&P. This index is sensitive to FAANG stocks: when they drop, the index tends to drop.
The dollar continues to rally and this is positive for the FTSE. As long as the Fed raises rates, inflation picks up and Fed chairman Powell is bullish on the US economy and so the dollar will continue to rally. GBP/USD will continue to decline (assuming Brexit does not change this pattern) and the FTSE will be strong.
Yesterday Powell said the US outlook is remarkably positive. What Powell does not see coming is inflation, or he sees it coming but he won’t tell you it's coming. Central bankers and politicians will never tell you the bad news, their job is to reassure people, their task is to show stability and confidence in their actions.
When people feel confident they spend more. They also borrow too much when interest rates are low and this is the problem now. The debt bubble is too big and government, business and consumer debt is at record high. When interest rates rise the debt becomes more expensive to repay.
Powell knows this yet the Fed plans more rate hikes. Things will also become more expensive because of the tariffs, how will the US consumers manage? The auto sector is already in a bear market, Ford (NYSE:F) and GM (NYSE:GM) share prices are at new lows. Housing is in decline, sales of house prices are going down. I am not sure the US economy is in good shape like Powell and Trump say.
You can see, there is limited upside in the stock market, because the economy is not growing in all sectors. In a strong economy, activity in the auto and housing sectors will boom. This is my view, so I wonder how the FTSE 100 will rise to 8000 and how the S&P 500 will rise above 3000. Because bond yields are rising too, and oil is at multi-year highs too. There are simply too many negative factors and not enough positive ones. For some reason I think shorting the markets will be more profitable than buying in the future.