- Equities rallied on Wednesday, SPY closed up 1.97%.
- Nasdaq and small caps also perform strongly.
- Apple falls as iPhone production looks flat.
Equities rallied on Wednesday on a central bank pivot. “What, already?” you say. Yes, the Bank of England decided to walk the tightrope between hiking shorter-term interest rates and lowering long-term interest rates at the same time. This is financial gymnastics beyond the grasp of many but boils down to this – inflation is rampant, so the prescribed cure is higher interest rates. That should dampen demand. However, that kills the economy and freezes up financial markets, so you decide to attempt to lower long-term interest rates at the same time. This encourages risk assets that price based on longer-term rates more than short-term. The potential and possible major downside is inflation becomes entrenched and actually in worst-case scenarios runs completely out of control like an emerging economy.
Apple attempted to put a brake on the Wednesday rally as Bloomberg carried a report that it had asked suppliers not to try and boost production. We see analysts jumping on the bandwagon on Thursday, and a host of downgrades seem likely. Once again analysts are late to the party: we outlined our $100 price target months ago.
See more here: Apple Stock Deep Dive: AAPL price target at $100 on falling 2023 revenues
Thursday sees a turnaround in risk sentiment as the penny drops that this pivot will not be as bullish as previous ones. For starters, it is not a pivot lower but likely to be a pause and a long one. Rates are likely to stay higher for longer. Central Bank is truly facing the end game in how to avoid either inflation or a financial meltdown and must choose a careful path between those two storms.
We remain mired in the chop zone around the June lows. Currently, $362 is a big support, and all this chop could see a powerful break lower. Any move higher is likely to be less impressive. A break may go straight to $352. Wednesday’s high is the short-term pivot at $372. Above, we try to push it to $382, but the longer we remain below then the more likelihood of a 3% sell-off to $352.
SPY daily chart