What the FTSE 100 and yields are telling us

<p>Stock markets rebounded led by the Nasdaq. Tech stocks are in demand when the virus spreads, last year at the height of the pandemic tech stocks were the best performers. This time the pandemic is coming to an end but there are still concerns about the Delta variant, it is spreading fast.</p>
<p>The rise in the number of infections is associated with rising inflation, investors don’t want to hold stocks if Covid cases climb. We learned from last year experience that when there is a sharp rise in infections the money supplies increases, production decreases and there is a shortage of workers, this combination pushes inflation up.</p>
<p>As governments are re-opening their economies and removing all restrictions, expect the number of Covid cases to increase. I think the rebound in the S&amp;P 500 is overdone, clearly US investors are not focusing on the fundamentals, instead they are driven by the fear of missing out.</p>
<p>This rebound won’t last but it will drag the FTSE 100 higher. The FTSE has already rallied strongly from the low on Monday. It could go higher but as I said in previous updates, upside is limited. This is a market going down or sideways. Look at commodity prices like oil and copper, like bond yields, they are down. When yields and the FTSE 100 go down it means investors are betting on weaker growth, this is why oil and copper went down. Weak growth and rising inflation is not a good combination for the stock market.</p>
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