1. Moving the markets

The major indexes were subdued early in the session, because Target’s profit warning sent equities into the red. After some bobbing and weaving, momentum turned positive, as dip buyers and a short squeeze combined forces to produce a green close to.

A big assist came from the bond market, after yields retreated with the 10-year losing 5.6 basis points and closing a tad below the much-feared 3% level. Any close above it appears to wreak havoc with equities, while any close below it supports bullish sentiment.

Traders are still anxiously debating whether the recent bounce is a bear market rally, or if we have seen the bottom of this year’s sell-off with a new bullish run now on deck. Personally, I think we may see a little more push to the upside, yet in limited fashion, after which new lows for the year will be made.

Econ data painted a different reality picture then that of equities. First, as ZH reported, the World Bank downgraded global economic growth and warned of stagflationary pressures building.

This was followed by the Atlanta Fed downgrading US economic growth to 0.9% from a 1.3% level just seven days ago. Way to go! Quipped ZeroHedge: Finally, today was a great day for buying stocks…   

1. Moving the markets

Another head fake session saw the Dow gaining over 300-points early on, but the rally quickly lost steam with the major indexes briefly dipping into the red, before a late push saved the day. The Dow settled at about unchanged, but the S&P 500 eked out a modest 0.31% advance.

The early boost was a result of China rolling back some of its Covid restriction, which traders interpreted as their economy returning to near capacity within a month. That should be a boon to the global economy and would hopefully ease the supply chain issues.

Still, uncertainty abounds that the Fed might raise interest rates too fast and too much creating a recession in the process. Well, you can’t have it both ways, as the Fed has only limited options. Either fight inflation fast and furious and risk a recession, or be too easy and watch hyper inflation create havoc. Take your poison.  

Rate hike expectations climbed to its highest level since the May Fed meeting with bond yields ripping higher, as the 10-year added over 10 basis points to recapture the 3% level to close at 3.045%.

That helped the US Dollar to reverse its downtrend and wipe out early losses. Gold dropped on dollar strength and gave back its $1,850 level in the process. Unfortunately, gasoline prices hit another record high, as ZH reported, which appears to be now an almost daily occurrence.   

1. Moving the markets

After an early bounce, the markets got double punched via a variety of headlines that gave the bears the upper hand and allowed them to dominate this session.

We learned that “inflation is sticky and degrowth is not slowing it,” as well as a warning by JP Morgan’s Jamie Dimon that “it’s a hurricane. That hurricane is right there, down the road, and coming our way. We don’t know if it’s a minor storm or if it’s a Superstorm Sandy,” all of which left last week’s dead-cat-bounce in the rearview mirror.

Not helping was the known fact that today was the first day of the Fed’s QT (Quantitative Tightening) program, which will affect markets negatively. As a result, the major indexes tumbled off their morning highs, while bond yields spiked and the US Dollar jumped.   

An afternoon rebound effort failed with another dour outlook like “a soft-landing scenario is hard to achieve,” which was uttered by Wells Fargo’s CEO. Even the Fed’s Bostic clarified his previous comments that a “September pause” should in no way be interpreted as a “Fed Put.”  

In the end, Rate-Hike Expectations rose, with stocks, bonds and banks all closing in the red. Gold bucked the trend and, despite an up and down ride, ended the day in the plus by a small margin.

As ZH commented, the manufacturing surveys and the reduced Atlanta Fed’s own GDP forecast (revised down to +1.3%), as well as current inflation expectations, paint a picture that clearly screams “Stagflation.”