Weekly Memorandum 3/29/2021

Stocks staged a dramatic "3:30 ramp rally" on Friday, and we saw the highest weekly closes achieved in history in both the S&P and Dow. The Nasdaq continues to lag behind, but this is largely a function of the continuing sector rotation out of growth and into value. This trend has caught more wind as inflation expectations continue to soar to decade-plus highs.


The dollar caught a nice bid last week, while the cryptos consolidated near their all-time highs. The dollar is in an interesting position now, because Treasuries keep falling (rates keep rising). Eventually, foreign capital will be attracted to the higher interest rates, what is commonly known as the "carry trade." Commodities continue to do well overall in the face of a dollar that has risen in the past few weeks, although many of them have spent the past few sessions consolidating their gains near cycle highs.


If commodities continue to rally in the face of a rising dollar, it will be indicative of very strong demand. Typically, the relationship is inverse. That is, commodities rise when the dollar falls, but in such cases, it's merely a function of currency depreciation. If a commodity rallies in tandem with a currency, it's indicative of real demand.


Stagflation remains the most likely scenario for the U.S. economy right now. The question now is whether the inflation portion of this macroeconomic environment will come off the back of commodity shortages or a dollar depreciation. It is still too early to tell.

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