Q3 Top Opportunities Overview:
- Despite some twists and turns, the first half of the year was indeed about the growth story, and heading into 3Q’21, it appears that the tune will remain the same.
- The long US equities story is set to continue into the second half of the year.
- As long as the bull case for global growth remains, then energy should be in strong demand.
Growth Story Remains Strong
Central banks remain accommodative even as they signal the end of crisis-era efforts; fiscal authorities continue to provide support with further government spending increases anticipated out of both Europe and North America; and rising vaccination rates, and high efficacy of existing vaccines, suggests that the delta variant story is becoming a ‘wall of worry’ for markets to climb in the second half of 2021.
US S&P 500 (SPX) TECHNICAL ANALYSIS: DAILY CHART (June 2019 to June 2021) (CHART 1)
The long US equities story is set to continue into the second half of the year, and now that the runaway inflation narrative has been nipped in the bud (insofar as the Federal Reserve has been hammering the perception that price pressures are transitory, and now that supply chain pressures are easing, more of the market is ‘buying’ the story the Fed is ‘selling’).
With equity volatility term structure suggesting calm seas ahead, it’s possible we’re entering a period that may be best described as a ‘slow grind higher.’ Both the US S&P 500 and the US NASDAQ 100 look on more favorable technical footing than most developed market counterparts (and emerging market counterparts, too); the former is targeting 4350; the latter is targeting 15220.
CRUDE OIL (US OIL) TECHNICAL ANALYSIS: DAILY CHART (June 2019 to June 2021) (CHART 2)
While the long copper/short gold pair trade still makes sense thematically, there is an argument to be made that recent shifts in the fundamental backdrop for copper make it a less viable vehicle to express a pure growth view.
With global demand increasing at a torrid pace post-pandemic, the OPEC+ announcement that production cuts will remain in place keep the near-term supply-demand imbalance as a viable catalysts for more gains in crude oil prices.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist