1. Moving the markets

An early market dump received an unexpected assist, which turned into a big intraday comeback. Unlike yesterday, when Fed head Powell uttered some soothing remarks to pull equities out of a deep hole, today, the torch was passed.

It was none other than Fed Gov Lael Brainard who took center stage first and voiced this dovish comment:

“The economy remains far from our goals in terms of both employment and inflation, and it will take some time to achieve substantial further progress.”

This was followed by Powell’s semi-annual testimony, which was market friendly and contained no surprises, after which stocks and bonds went on a rampage.

Yes, that was all it took for the markets to change direction and shift into high gear with all 3 major indexes soaring, led by the Dow. Even the Nasdaq and SmallCaps (IWO), which have struggled as of late, catapulted higher by +0.99% and +2.10%.

Rising bond yields also shifted in reverse with the 30-year dropping 5 basis points from intraday highs while the 10-year performed similar magic. For sure, had it not been for the “rescue operations” by the above Fed Gov/Powell team, we might have seen an ugly sell off.

The US Dollar could not make up its mind and simply roundtripped, thereby pushing Gold around, however, the precious metal did not gain anything yet managed to hang on to its $1,800 level.

This day leaves me pondering “who will save the markets tomorrow?”

1. Moving the markets

For the past few trading sessions, it seems like I am saying the same thing every day: A positive tone in overnight trading followed by a slam down at the opening. Today was no exception, but the major indexes managed a nice comeback with only the Nasdaq remaining down by -0.50% at the close, which was a great revival considering the lows of -2.5%.

While the Dow and S&P 500 crawled back into the green, it was only by a tiny margin, but we saw green, nonetheless. The Dow recovered from an early 360-point loss, which is quite remarkable.

SmallCaps (Russell 2000) dropped another 0.9% today, but they remain the top performer for this year with +7.6%.

Supporting the comeback were soothing words by Fed head Powell, as CNBC reported:

The intraday turnaround came after Powell said in his testimony to Congress that inflation is still “soft”, and the economic outlook is still “highly uncertain,” easing fears of a policy change by the central bank.

“The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved.”

With inflation fears having risen recently, causing surging bond yields, worries that more economic relief could force the Central Bank to raise borrowing costs, were somewhat alleviated after Powell’s speech.

The US Dollar tumbled, Gold barely held on to the $1,800 level and 10-year bond yields went sideways.  

All in all, today was a recovery day. We’ll have to wait and see if that upward momentum can carry over into the end of the month.

1. Moving the markets

Despite a bullish theme in last night’s futures session, the regular one saw the bears take over, and the major indexes opened to the downside, just as we’ve seen recently. The remainder of the trading day was spent climbing out of that early hole with only the Dow managing to get back to even.

The S&P 500 and Nasdaq failed with the latter getting hit hard and closing at the lows of the day, which does not bode well for tomorrow’s opening.

Added CNBC:

The 10-year Treasury yield rose again on Monday to around 1.36% after jumping 14 basis points last week to its highest level since February 2020. So far this month, the benchmark rate has moved up 27 basis points. The 30-year yield touched a one-year high of 2.2% Monday.

As I pointed out several times, the direction of bond yields will either support or punish equities. Right now, the trend is higher, which reduces traders’ appetite for stocks, especially in the tech sector, as big names got pressured today.

The reason is that fast high-growth tech companies, which rely on easy borrowing terms, could get hurt, and that is what we saw today. The good news was that Gold had a strong showing with +1.69%, which offset some of the tech losses.

On the other hand, some traders believe that the jump in bond yields simply reflects growing confidence in the nascent economic recovery by arguing that stocks should be able to absorb higher rates due to increased earnings.

Despite this current weakness, the markets have produced solid gains for the month, with the Dow and S&P having added around 5% and the Nasdaq +4.5%. SmallCaps have maintained their leadership with a solid +9.6%.

Let’s see if these numbers can hold up during the final 4 trading days.