[Chart courtesy of MarketWatch.com]

1. Moving the markets 

The market was in a good mood today, thanks to the tech sector’s strong performance. Apple led the way, gaining 3.3% after getting a thumbs up from Bank of America. The iPhone maker shrugged off a recent downgrade from Wells Fargo and had its best day in over eight months.

Meanwhile, the job market remained tight, as the latest data showed fewer people filing for unemployment benefits than expected. The 10-year Treasury yield rose to 4.14%, reflecting the economic optimism.

However, not everyone was happy. The Fed’s Raphael Bostic said he expects the central bank to start cutting rates in the third quarter, which is sooner than he previously thought, but slower than what the market wants.

The Senate also did its part, passing a bill to avoid a government shutdown. This sparked a buying frenzy in stocks, especially on the Nasdaq, which outperformed the other indexes. The MAG7 stocks (Microsoft, Amazon, Google, Facebook, Netflix, Tesla, and Apple) reached new heights, while the most hated stocks continued to suffer.

Other markets also saw some action. Bond yields climbed higher, the dollar stayed flat, oil prices rose over 2%, and gold bounced back from the $2k level.

But here’s the catch. The S&P 500 and bond yields are both at one-month highs, which is a rare and risky situation. It looks like an alligator’s mouth that could snap at any moment.

Will the market bite the bullet or dodge the bullet?

[Chart courtesy of MarketWatch.com]

1. Moving the markets 

The stock market lost its appetite as bond prices went down and interest rates went up. The U.S. economy also showed some surprising strength, making the Fed less likely to cut rates.

ZeroHedge summed it up like this: Retail sales: hot; Housing: sizzling; Industrial Production: – not bad. The ‘real’ numbers are looking good, while the ‘soft’ surveys are tanking. Bottom line: the economy is growing too fast for the Fed to lower rates, and the market knows it.

But traders are still hoping for a miracle, and betting on a 52% chance that the Fed will start cutting rates in March.

The December retail sales report was a big boost for the economy, and a big blow for the rate-cutters. Consumers were spending like crazy, even without cars.

Retail sales rose 0.6% from November and 0.4% without autos. Economists were expecting 0.4% and 0.2%, respectively. The 10-year Treasury yield jumped to 4.11%, up 4 basis points from Tuesday, after Fed Governor Waller said the Fed might not ease as fast as the market wants.

The MAG7 stocks (Microsoft, Apple, Google, Amazon, Facebook, Netflix, and Tesla) had a bad day, losing all their gains for the year. The most hated stocks also kept falling, with no sign of a rebound.

The dollar was the big winner, thanks to the higher yields. It had the best start to a year since 2015. Gold, on the other hand, suffered from the stronger dollar, and ended the day lower.

The Fed’s next move will be crucial for the market’s direction. The Fed is in a tough spot. If Powell gives the market what it wants (6 rate cuts) in this election year, inflation will go through the roof, and everyone will be mad, especially the politicians who want to keep their jobs. If he doesn’t cut, the market will be sad, and only the bears will be happy.

What will he do?

[Chart courtesy of MarketWatch.com]

1. Moving the markets 

The Dow took a nosedive today, leading the market’s merry dance downwards as interest rates inched up and traders sifted through the latest earnings reports like kids at a candy store. Investors are on the edge of their seats, waiting for more data to peek into the wallet of the American consumer.

The 10-year Treasury note yield leaped like a frog, up 12 basis points to 4.071%, after Federal Reserve Governor Christopher Waller played coy in his speech, hinting that the Fed’s monetary policy might loosen up slower than a snail at a marathon, much to Wall Street’s chagrin.

Waller’s words were a juggling act of optimism and caution:

“I’m getting that warm, fuzzy feeling that we’re almost hugging that sustainable 2% PCE inflation.”

“As long as inflation doesn’t get clingy, I’m hopeful the FOMC will cut the federal funds rate target range this year.”

“When it’s time to trim rates, let’s do it with the precision of a bonsai artist.”

“With the economy flexing and inflation on a gentle descent to 2%, there’s no rush to slash rates like a Black Friday sale.”

“I’m pretty sure we’ve nailed the policy setting.”

Traders, expecting a different tune, watched their rate-cut dreams crumble like a cookie. Equities took a dive, bond yields soared, and the message was loud and clear: those six rate cuts we were daydreaming about? Might want to pinch yourself. And a March cut? Don’t bet your bottom dollar.

The 10-year yield strutted back above 4% and closed at its loftiest since the December Fed meeting, as financial conditions loosened up. The MAG7 stocks stood their ground, but the most shorted gave their investors some nice gains.

The dollar, riding the high-yield wave, broke free from its trading shackles, while gold took a tumble yet clung to its $2k throne.

Amidst the growing drumbeats of war in the Middle East, crude oil played hopscotch before bowing out lower. But don’t hold your breath; this calm might just be the eye of the storm.

Will the market’s rollercoaster ride smooth out, or are we in for more loop-the-loops?