1. Moving the markets

The Dow led the way in a bullish day for the stock market, while the Nasdaq trailed behind but managed to end its 4-day losing streak.

Tesla was one of the laggards, dropping 2% amid a tech sell-off. The rally was fueled by strong earnings reports, as 80% of the S&P 500 companies that have reported so far beat Wall Street’s lowered expectations.

The market rebounded despite rising bond yields and Apple’s fifth consecutive day of losses, which shaved off 10% of its value since last week. This was its worst performance since November. Tyson Foods also had a rough day, but the market recovered some of its losses in the final hour thanks to bargain hunters.

The dollar was flat, while gold dipped and then recovered but still closed in the red.

Later this week, investors will pay attention to the consumer and producer prices indexes, which are key indicators of inflation and economic health. Both could move the market significantly depending on their outcomes.

In the meantime, traders should be aware of the seasonal pattern of the volatility index (VIX), which tends to spike in August. This chart shows how this could spell trouble for stocks, as higher volatility usually means lower prices.

Remember, when the VIX goes up, stocks go down.

1. Moving the markets

The bond market was the bad guy today, as higher yields scared off stock buyers for the third day in a row. The 10-year yield jumped to 4.18%, the highest since last November, and the 30-year yield was close to its October peak.

This hurt real estate stocks, which fell more than 1%, and made the market more nervous, with volatility at its highest since June. Utilities also got a beating, losing 2.3%.

The stock market was due for a correction anyway, but rising rates could make it worse, as momentum has been fading lately. Some analysts think that the old pattern of “break, bounce, break again” will still hold, as long as there is some hope that the long-term trend is up.

On the earnings front, there were more misses than hits, with Qualcomm, PayPal, and Expedia all disappointing investors and seeing their shares drop.

Later today, we will hear from two of the biggest names in tech: Apple and Amazon. The dollar was steady, Crude Oil recovered some of its losses, while gold slipped a bit under the pressure of higher rates.

These higher 10-year yields are starting to weigh on the major indexes, especially the S&P 500, as this gap can’t last forever—and from this chart it looks like that the index will have to ‘catch down’ to the yield.

And that means trouble ahead.

1. Moving the markets

Wall Street got a wake-up call on Tuesday night when Fitch, a ratings agency, downgraded the U.S. credit rating from AAA to AA+, citing the worsening fiscal outlook for the next three years. But the U.S. sovereign risk didn’t seem to care much, as this chart shows, unless you compare the different presidential terms.

This triggered a selloff in stocks on Wednesday, with the Nasdaq Composite plunging more than 2%, its worst day since February, as investors dumped risky assets and sought safer havens.

Some analysts tried to put a positive spin on the situation, saying things like “this is just a healthy correction after a strong rally, nothing to worry about” and “we still believe in the economy and the markets, despite this minor setback”.

But the earnings reports were mixed at best, and the manufacturing sector suffered another month of job losses, its fifth in a row. The ADP report showed that wages were growing slower, even though 324k jobs were added, beating expectations.

Bond yields soared, with the 10-year breaking above 4% for the first time since November. But they lost steam by the end of the day and closed lower.

The shorts finally had their day in the sun, as the stocks that they favored fell hard.

Banks and chipmakers were among the losers, with AMD taking a big hit. The dollar rose along with bond yields, but oil and gold went south.

So, is the Covid/Crypto boom back in sync with the AI boom? It sure looks like it.