Certainly, the Fed's transitory view is entirely plausible since there
was bound to be a hangover from the huge fiscal and monetary stimulus
after the Covid crisis. The bond market seems to be in this camp as
yields have continued to trend downwards over the past few weeks. And
despite today's high inflation number, yields fell again with the
10-year closing at 1.45%. If inflation was likely to increase down the
road, yields would be rising rather than falling as traders would
demand more premium to cover any anticipated loss of value.
And yet the planets are hinting at troubles ahead. Saturn is due to
form its second exact 90-degree square alignment with Uranus his Monday,
June 14. Readers will recall the first Saturn-Uranus square in
mid-February coincided with an interim top in the stock market within
one day. Due to their respective retrograde periods, Saturn forms three square
aspects with Uranus over the course of a year or so. So next week
will see the second square, with the third and final square due in
December.
All square aspects involving Saturn carry an elevated risk of some downside, although they don't always coincide with selling. In a previous post, I analyzed the series of Saturn-Uranus squares from 1999-2000. The first square in this series was bearish and marked the beginning of a 10% decline, while the second square lacked any clear direction. The third square in April 2000 again coincided with a pullback. Indeed, the extended Saturn-Uranus square period more or less coincided with the top of the 18-year long bull market.
Interestingly, the preceding Saturn-Uranus square in 1976-1977 was also bearish. While it did not coincide with the start of a bear market, it was nonetheless a difficult time for the market during the period of 1970s stagflation. Markets reached an interim top in March 1976 of 4700 on the Dow during final year of the Ford administration but then declined more than 30% to 3100 by early 1978 under Jimmy Carter.
The first Saturn-Uranus square took place in July 1976 after which the market fell 10% over the next 5 months. Stocks continued to fall to new lows through the second and third Saturn-Uranus squares in February and April of 1977. Stocks eventually formed an interim bottom in February 1978.
Could history repeat here in 2021 as Saturn and Uranus again form a tense 90 degree angle? While history never exactly repeats, it does often rhyme. The presence of two more Saturn-Uranus squares this year definitely creates a more challenging outlook for the stock market. And with inflation ticking higher just as it did in the late 1970s, it is tempting to think that inherent economic pessimism of the Saturn-Uranus aspect could well manifest again in the coming months. In the near term, next Monday's Saturn-Uranus aspect bears close watching as stocks are trading at all-time highs. While bulls have the momentum on their side, further upside looks somewhat less likely in the aftermath of this aspect.
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