FED PIVOT ON RATES BOOSTS BONDS AND STOCKS -- GOLD AND ITS MINERS BENEFIT FROM FALLING RATES

SPX RALLY BROADENS OUT... Two inflation reports this week showed consumer and producer price inflation cooling off.   Then on Wednesday afternoon the Fed suggested that it may be ending its rate hikes, and might even lower rates three times in the coming year.   That combination resulted in a big drop in short and long term interest rates and steep rallies in bond prices and stocks.   It also caused some rotation into sectors like REITs and financials which are more rate sensitive and led the market higher. Gold also had a strong week.  Another change was money flowing into small cap stocks which have been market laggards all year.   That has helped broaden out the market uptrend and raised stock forecasts for the coming year.  The Dow was the first of the major indexes to hit a record high.   Others are getting close to doing the same.

Chart 1 shows the S&P 500 nearing a test of its record high formed two years ago.   Chart 2, however, shows a bigger weekly gain in the  S&P 500 Equal Weight ETF (RSP) which also broke out to a two-year high.   That stronger performance resulted from a 52-week high in the Russell 2000 Small Cap Index which is more interest sensitive than larger stocks.   Both indexes appear more positive and a test of previous highs is likely.   One cautionary note, however, is that this week's price jump has put both indexes in a more over-extended condition as shown by the RSI lies rising well into overbought territory over 70.

SAME MARKET LEADERS... The last message from two weeks ago listed three sector leaders being REITS, financials, and industrials.  They remains the biggest monthly leaders.   Chart 3 shows the Real Estate Sector SPDR rising to a new 52-week high.   REITS are one of biggest beneficiaries of falling bond yields.  [Homebuilders also had a strong week on the back of falling mortgage rates].  Chart 4 shows the Financial Sector SPDR breaking through overhead resistance formed a year ago.   Financials are also big beneficiaries of falling interest rates.  Chart 5 shows the Industrial Sector SPDR reaching new record territory.   Gold and gold stocks also had a strong week thanks to falling rates and a falling dollar.

FALLING RATES BOOST GOLD... As often happens when Treasury yields fall sharply, the dollar also falls.    And that combination is usually good for gold and its miners as it was this week.   The brown bars in Chart 6 show the VanEck Vectors Gold Miners ETF (GDX) jumping to the highest level since July.   The drop in the 10-Year Treasury Yield (TNX) contributed to that rally.   Gold is nearing a new record.   Silver and its miners are also having a strong week.