[Chart courtesy of MarketWatch.com]

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.

[Chart courtesy of MarketWatch.com]

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.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The market took a small but widespread dip today, as investors are facing a flood of earnings reports from 160 companies in the S&P 500. The mood was tense, but not hopeless, as most of the firms beat the low expectations that were set for them.

Some analysts think this means the economy can dodge a recession, even though they ignore the signs of inflation and uncertainty ahead.

According to FactSet, analysts still expect a 7.1% drop in earnings from a year ago, marking the third quarter in a row of shrinking profits. How does that square with the high stock prices we see today?

Bond yields jumped, despite weak economic data, and the dollar broke free from its recent range. The usual suspects – short sellers – prevented a bigger sell-off and kept the S&P 500 from losing more than 1% in 40 days.

Banks took a hit, as the 10-year yield rose above 4% again, and the 30-year reached its highest level since last November. Gold didn’t shine either and fell below $2k again.

As for inflation, those who think it’s tamed may have to think again. Crude oil is climbing up from its lows, while wholesale gasoline is ready to burst. In short, it was a rough day for the bulls, but not a disaster. Yet.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The market was a roller coaster today, but the major indexes still managed to end the month on a high note, even though the Fed has not ruled out further rate hikes.

The S&P 500 gained 2.9% and posted its fifth consecutive positive month for the first time since August 2021. Investors seem to be optimistic about a smooth economic recovery, as recent data shows strong job growth and easing inflation. The second-quarter earnings also beat the low expectations.

However, this rally was driven by only 7 of the S&P 500 stocks, so the rest of the market was not as lucky. That’s why traders are eagerly waiting for Amazon and Apple to report their earnings on Thursday, which could make or break the market mood.

Last week, the Fed increased rates by a quarter-point, to the highest level in more than 22 years. Fed Chair Jerome Powell said the Fed will act based on data, not predictions, but he also hinted that rate cuts are not likely anytime soon.

The US Economic Surprise Index rose for the third month in a row and reached its highest level since March 2021. So much for the landing scenarios. Maybe we are flying high…

Of course, part of the reason for the July surge were some massive short-squeezes, which sparked the biggest 3-month rally since March 2021.

Bond yields were mixed, with the 10-year failing to break above 4% twice. The dollar dropped for the second month in a row but bounced back from its mid-month low.

But one thing that could spoil the inflation party was Crude Oil, which had its best month since January 2022, as it almost hit $82. This could push up the CPI numbers in the future.

Gold also shone brightly, with its best month since March and a 3% gain. It also reclaimed the $2k level again.

Despite the bullish mood on Wall Street, the S&P 500 is way out of sync with high yield bonds, which makes me wonder when this gap will close.