[Chart courtesy of MarketWatch.com]

1. Moving the markets

There was no question as to who oversaw market direction today. With bond yields soaring, and the 10-year spiking to 2.78%, its highest level since January 2019 when it topped out at 2.799%, the bears clearly had the upper hand.

The major indexes got smacked with the Nasdaq leading the downturn by surrendering 2.18%, hotly pursued by the S&P 500 with a -1.69% drop. Other than gold, there was no place to hide, as bond holders were taking behind the barn for another spanking, as the most widely held TLT slumped another -1.73% bringing its YTD loss to a stunning -15.57%.

I have cautioned about bond investments for a long time. After all, when yields are at all-time lows, and inflation is raging, the most logical outcome are rising yields, which destroy bond prices. Mortgage rates were also affected with the 30-year reaching 5.25% today, it’s highest since 2009.

As a result, risk assets, especially in the tech area have been shed by traders, as the reality that we may be at the end of the bond super cycle slowly sinks in. If the Fed is serious about fighting inflation, and follows through with their accelerated hiking schedule, there will be much more downside equity pain on deck, which is why it’s critical to limit risk via an exit strategy.

One analyst summed it up like this:

And right now, the Fed has an urgent and fateful decision to make.

It can keep printing trillions of dollars, let inflation skyrocket, or tighten monetary policy, and watch the stock market crash.

In other words, it can sacrifice the stock market or the dollar.

Despite “value” ending up moderately in the red, “growth” got slapped, as Bloomberg demonstrates in this chart.

Crude oil pulled back again and currently sits a tad below $95, with the Energy sector slipping as well, but Gold was the savior of the day by gaining +0.64%.

The most anticipated number will be tomorrow’s CPI with consensus estimates being in the 8.4% range. Ouch.

A tip of the hat goes to ZeroHedge for this quote by Chicago Fed President Charles Evans, who said today:

“We will know a lot more about persistent inflation the end of the year” and (here’s the best line), he is “hopeful it’s receding…”

Ah yes, I feel much better now…

Read More

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The highly anticipated Fed minutes turned out to be more hawkish than expected in terms of QT (Quantitative Tightening) and future rate hikes, which ZH summed up like this:

• As much as $95 billion in asset runoff per month ($60-90 bn expected)
• Many Fed officials say half-point hikes may be warranted
• Fed sees need to get to neutral posture ‘expeditiously’
• Fed fears public loss of confidence in is resolve over inflation

That pushed the Dow down some 250 points right after the opening with the other 2 major indexes following suit. While an afternoon comeback cut losses, the Nasdaq still took the brunt of the beating by losing 2.2% on the day.

All majors plunged below critical support with the S&P 500 dipping below its 200-day M/A and the Nasdaq heading towards its 50-day M/A.

None of the Fed’s mouthpieces helped matters, especially with NY Fed President Dudley posting this warning:

It’s hard to know how much the U.S. Federal Reserve will need to do to get inflation under control. But one thing is certain: To be effective, it’ll have to inflict more losses on stock and bond investors than it has so far.

That goes along with what Fed head Powell has said (Hat tip ZH for this bon mot):

Financial conditions need to tighten. If this doesn’t happen on its own (which seems unlikely), the Fed will have to shock markets to achieve the desired response. This would mean hiking the federal funds rate considerably higher than currently anticipated. One way or another, to get inflation under control, the Fed will need to push bond yields higher and stock prices lower.

The Fed can’t get clearer on its intentions than the above. However, should markets dump, the question remains whether they will override their desire of seriously fighting inflation, or will they succumb to bailing out equities like they did the end of 2018?

Bond yields jumped with the 10-year touching 2.65% intra-day, a high from which they backed off to close at 2.601%. The US Dollar gained a tad, and so did gold.

Once the actual rate hikes and QT implementations take place in May and June, it should become clear, even to those with blinders on, that these events will not be a positive for stocks.

Read More

[Chart courtesy of MarketWatch.com]

1. Moving the markets

While we saw a benign opening, things went south for the broad markets, as Monday’s theme of climbing a wall of worry was short lived with the major indexes giving back more than they gained yesterday. It brought back of thoughts as to whether this chart indeed is showing a topping formation.

Downward momentum accelerated in the last hour when Fed mouthpiece Brainard, a more dovish Fed member, opined that a more aggressive approach to the Central Bank’s policies might be in order.

Mark Zandi, chief economist at Moody’s Analytics, assessed the situation with much realism:

“Ultimately, the way this is going to work, the economy is going to slow, the stock market has to reflect that. So, I do expect the stock market to have a tough few months here as it ultimately adjusts to what the Fed is doing and will do going forward.”

That view went right along with Deutsche Bank’s statement forecasting a recession ahead, the first major Wall Street bank to do so.

Bond yields exploded to the upside with the 10-year adding 15 bps to end the session at 2.555%. Ouch! That crushed bond holders again with the widely held TLT getting clobbered at the tune of -2.26% bringing its YTD loss to -11.29%. We have now reached the highest yields since 2018.

“Value” outperformed “growth” and yesterday’s market savior, namely the seemingly ever-present short squeeze, was absent today giving the “most shorted stocks” an opportunity to do what they do best: go lower.

The US Dollar headed higher, causing Gold to dip moderately.

In the end, ZH summed it up well by questioning the validity of this recent rally in the face of 9 more rate hikes this year. Graphically, it looks like this.

Hmm…

Read More