1. Moving the markets

After an early pump, which faded in a hurry, the major indexes dug themselves another hole, but a late session bounce helped avoid a much worse outcome. Still, the Dow and S&P 500 scored another loss, with the Nasdaq clinging to its unchanged line and closing in the green by a tiny margin.

Of course, there was not much bullishness to be found anywhere due to traders’ anxiety ahead of the Fed’s announcement on interest rates tomorrow. The much anticipated 50 bps increase has now been replaced by expectations of 75 bps with an outside possibility of 100 bps. The latter would sure cause havoc with the markets.   

Much confidence in the Fed has been lost, as they wasted almost an entire year referring to inflation as being transitory and therefore letting the monster get out of control. As I always said, trying to contain inflation, once it has charted its course, is like putting the tooth paste back in the tube.

Bond yields were in rally mode with seemingly nothing being able to stop their advances. The 10-year surged above 3.47%, its highest level since 2011, according to ZH. That helped the US Dollar to add 0.37% for the day and reach a high last seen in late 2002.

As is the case when the dollar rallies, gold suffers, and today was no exception, as the precious metal headed back down towards its $1,800 level.

All eyes are now on the Fed.

1. Moving the markets

Friday’s drubbing was followed by an ugly overnight futures session, which already pointed towards another knock-down of the buy-and-hold crowd and the dip-buyers.

Things got worse as the fifth largest ‘sell program’ in history was launched, as ZeroHedge elaborated, and wreaked havoc with the markets, while sending the S&P 500 back into official Wall Street bear market territory, which the index had touched a few weeks ago.

It was a Puke-A-Thon at its finest with Bloomberg offering this explanation:

Sell programs of this size are typically no single events. They tend to happen in clusters, and that probably means stocks might be in store for bigger losses.

Bond yields surged, as the major indexes got clobbered with the S&P 500 losing almost 4%, but the Nasdaq fared worse by giving up 4.68%. The 10-year ripped higher by an amazing 22 basis points to close at 2.389%! For context, the 2-year has now reached its highest yield since 2008.

All asset classes were clubbed, and even gold could not escape the carnage, as a host of news combined to hand the bears a chest-pounding win. ZH noted that event risk anxiety ahead of the FOMC meeting combined with Option Expiration technicals ($3.4 trillion option expirations) and European ‘fragmentation’ fears, along with the usual political and economic worries, were simply too much for traders to handle.

Financial conditions are tightening again and are zigzagging in tune with daily news as to the Fed’s next cause of action. This was not helped by sudden increase in expectations that the Fed might hike 75 bps instead of the assumed 50 bps when they meet this Wednesday.

As a result of soaring bond yields, mortgage rates rose and topped 6%, the US Dollar reversed from its recent sell-off and raced higher, while gold suffered from higher rates and gave back its $1,850 level.

Even though, this bear market may present us with some bounce-backs, the major trend remains lower, and in my advisor practice, we continue to be out of equities but have some limited exposure in selected sector ETFs.

1. Moving the markets

The roller coaster ride continued, as yesterday’s rebound vanished in a hurry, with the major indexes giving back more than they gained in the prior session. Bonds reversed Tuesday’s yield slippage with yields rising and the 10-year reclaiming its 3% level by closing at 3.03%.

Updates and warnings from major companies (Credit Suisse, Intel) contributed to equity weakness amid signs that economic growth is not what it was cracked up to be. In other words, we are slowing down with the Stagflation scenario becoming more real every day.

Things are starting to affect the housing market, because mortgage demand hit its lowest level in 22 years, as per the Mortgage Bankers Association. A rally in Crude Oil to over $122 only created more anxiety, but Natural Gas plunged due to a small terminal explosion. ZH explained that less exports means more domestic supply, hence the sell off. The reverse happened in Europe, as their supplies were cut and prices subsequently rose.

On deck for Friday is the highly anticipated CPI number for May. It’s reading could influence the path of Fed policy in terms of frequency (a potential pause) and magnitude (0.5% increments) and therefore affect market direction as well.