1. Moving the markets

An early rally, at least for the Dow, petered out with all 3 major indexes diving into the close. The S&P 500 managed to hug its unchanged line for most of the day but succumbed to weakness in the end with the Nasdaq being the guilty party dragging down the indexes.

Technology continued its slump, making Friday’s gains look like a dead cat bounce, as traders rotated out of the high-flying tech sector and moved into companies better suited for a strong economic rebound.

“The tech price action is especially frustrating for many as the thought was Friday would elicit a more sustainable rebound in the space,” Adam Crisafulli, founder of Vital Knowledge, said in a note. “Instead, the group is seeing aggressive selling and accumulating technical damage as prices breach key levels.”

SmallCaps got thrashed with the widely held VBK losing 2.7%, and the sector closing below its 50-day M/A, as Bloomberg shows. Surprisingly, commodities reversed the northerly trend and gave back some of their recent gains, as did Lumber futures, whose reckless bullish ascent has contributed to sharply increased pricing for new homes.

Despite the US Dollar being flat, and the 10-year bond yield rising back above 1.60%, Gold managed to eke out a 0.35% gain and produced one of the few green numbers in today’s roller coaster ride.

It was a sloppy start to a new week, despite early promises, and may have been simply a hangover from Friday’s disgusting jobs report.  

1. Moving the markets

Early weakness gave way to a mid-day pump, which was followed by a date session rip with all three major indexes closing in the green. The laggard again was the Nasdaq, as “value” continued outperform “growth.” YTD, the Russell 1000 Value index has gained 17%, while the Russell 1000 Growth Index shows only a meager 5%.

It seemed like traders were front running tomorrow’s jobs report, which is highly anticipated due to its representation of the labor market recovery. If today’s much improved weekly Initial Jobless Claims, which dropped to a pandemic low of 498k vs. expectations of 527k, is any indication, we might be in for a surprise. Despite today’s encouraging improvement, keep in mind that over 16 million Americans remain “on the dole.”

“Today’s read is another proof point that we’re one step closer to full economic recovery, sooner than some may have expected,” said Mike Loewengart, managing director of investment strategy at E-Trade Financial. “As we see some serious momentum building on the jobs front, all eyes will be on how this plays into action taken by the Fed, if any.”

Bond yields were in retreat mode with the 10-year holding steady below the 1.6% mark, while the US Dollar did its best imitation of a swan dive, as Bloomberg demonstrates in this chart. This combination did wonders for Gold, which surged 1.7% and finally recaptured its $1,800 level.

We will now have to wait and see if tomorrow’s jobs report can indeed live up to these high expectations, or if we will be witnessing the old standby routine, namely “buy the rumor, sell the fact.”

1. Moving the markets

Supporting the initial comeback bounce in the markets was Treasury Secretary Yellen, who completely reversed her hawkish talk on interest rates.

ZeroHedge presented it this way:

“Let me be clear it’s not something I’m predicting or recommending,” Yellen says about rates, flip-flopping her earlier perspective entirely.

Then she addressed the issue of inflation, toeing the establishment line that it will be “transitory” for the next six months or so…

She added that if there is an inflation problem, she is certain the Federal Reserve can be counted on to address it.

That’s all it took to pull the major indexes out of the basement and into green territory, at least early on and before the roller coaster ride opened up. Supporting actors were strong earnings results and general optimism, but they did not help the Nasdaq to return above its unchanged line.

Volatility picked up in part due to inflationary forces being hard at work, with the Bloomberg Commodity Index adding another up day, it’s 16^th straight and the highest level since 2015. However, keep in mind that the Fed considers this “transitory,” though they are living under the illusion that they are equipped to control accelerating prices.

A major sell program kicked in later in the session and took the starch out of upward momentum, just about the time as the Biden administration supported the waiver on Covid vaccine-patents at the WTO, as ZH pointed out.

Bond yields spiked initially above the 1.6% level but sold off into the close dropping to 1.57%. The US Dollar trod water all day and traded in a tight range, while Gold managed to eke out a small gain but was unable to conquer its $1,800 level.  

And, as we have seen lately, “value” outperformed “growth.”