Predict stock market for this year’s price movements in US stocks. That is, by increasing them from 1.5% to 3.8%. Further shifts will then be well signaled by the development of the dollar. In an interview with Yahoo Finance, the expert then described his view on the relationship between stocks and bonds and focused on the outlook for the financial sector.
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Predict Stock Market by looking into US Dollar
If investors believe that “there is light at the end of the monetary tightening tunnel,” the dollar will likely peak and weaken. According to the expert, this should be a clear positive signal for stock markets. Until then, long-term bond yields are “hostage to the Fed.” And if stocks were to rise during that time, it could force investors to sell bonds, raising their yields and, in turn, reducing the attractiveness of stocks.
Indeed, the growth of stock markets increases the wealth of households and could thus undermine the Fed’s efforts to dampen demand throughout the economy. And that is precisely why, according to Ablin, a stock rally could lead to higher bond yields and stop itself through this effect. According to the expert, data related to inflation are primary, and the state of the labor market has become secondary.
Current Market Situation
Asked about the outlook for banks, Ablin said the current environment is not doing much for their stocks. On the one hand, there is a slowdown in economic activity and added the yield curve, which does not help banks’ net interest margins much. They are also tightening their credit standards, which may indicate that the solvency of their clients is deteriorating. Lastly, activity is decreasing in some areas of investment banking. But Ablin is not an outright skeptic of banks, and he pointed to their strong balance sheets and sufficient capitalization.
According to him, the investor subsequently mentioned Chevron, which is a quality company increasing its dividend in the long term on the stock market. He also likes General Dynamics and Archer Daniels Midland. In the end, the investor returned to the dollar: When the end of rate hikes in the US is in sight, the most significant opportunities for risky assets will be in non-dollar markets, according to the expert. So, for example, on the Japanese yen.