August’s highlights: Is the economy setting the stage for an Autumn rotation?

That pushed probabilities of interest rate decline in September to above 90%, according to the Fedwatchtool. While the CPI inflation has not shown any decline, the US dollar has got under pressure, whereas EURUSD and GBPUSD are getting closer to their previous intermediate-term highs from July.

US inflation has stabilized both in CPI and PCE representation, which makes the data controversial: on the one hand, a weak NFP print sends potential recessional signals, whereas inflation is steady. The total economic situation is on the verge of stagnation, but at least the latest GDP print for the US was decent, which doesn’t point to any contraction yet.

Corporate profits posted in July were mixed, showing good performance for tech stocks (especially those AI-related), while other companies have shown controversial results.

The leading economic index (LEI) had triggered the recession signal for the third consecutive month in June. However, the AI narrative keeps the stock market rally moving.

The Nasdaq index was leading the rally coming closer to the all-time highs, whereas S&P500 and Dow Jones underperformed, indicating the decline in a market breadth.

The underperformance of Dow Jones is clearly visible but as the bullish market develops, the rotation mechanism can start with a possible correction or consolidation for techs and industrial stocks leading the rally.

In general, the “Sell America” narrative had stepped back in the agenda, pushing US stocks ahead of their European competitors: The DAX index struggled to renew July's highs.

Geopolitical dynamics:

The geo-political situation doesn’t bring any particular changes just yet, except for direct talks between Vladimir Putin and Donald Trump in Alaska, scheduled for Friday, the 15th of August.

That’s the first meeting of two presidents after the Russia-Ukraine conflict. After the multiple rounds of talks this year, experts keep their expectations low, as well as the markets don’t display any excessive optimism.

Crude oil, however, is being pushed down heading to $60: the median price according to the STEO forecast.

Now let’s break down some key opportunities of the upcoming period, starting with Dow Jones.

US30

The Dow Jones index has been underperforming, as Nasdaq and AI-related stocks have been rising higher after some strong earnings publications in July. Despite that, we know from the historical standpoint that the rotation mechanism in the bullish markets works like that: one sector rallies, then investors start taking profits and lift the underperforming sector.

Of course, it works only in the context of sustaining the bullish market. So, if US stocks resume the bullish trend, Dow Jones may speed up to fit the bullish rally.

Gold

The summertime break for the growth of Gold makes it move sideways, as volume diminishes. The local sell-off after the strong CPI print also had trimmed the volume and cut the speculation for Gold (it could have grown should the inflation moved down).

Despite that, the overall trend still looks bullish. According to the COT-reports, the speculative demand is still quite high and it consumes the increasing supply from commercial traders. Thus, the massive triangular formation visible on the chart, would probably break to the upside, as shown on the chart below.

Bitcoin

 With the massive rise of Ether this July and the relative underperformance of Bitcoin, the latter may finally get back on track compensating the difference (the same rotation mechanism as with stocks).

According to the MVRV indicator (Market value vs Realized value), Bitcoin might be considered as not overbought yet, whereas Ether’s parameters are much more overheated for now.

Thus, one may expect a rotation of capital in favor of BTC in the near-term should a bullish rally in crypto persist. The area of $130k would be considered as the next resistance - that’s a border of the ascending channel and a psychological level which may initiate profit-taking.

Though, the effect of the bullish spike may lead it higher than anticipated.