[Chart courtesy of MarketWatch.com]

1. Moving the markets

Today’s session turned into another wild ride, when an early 350-point ramp in the Dow was wiped out, with major indexes retreating to their unchanged lines, only to see them as a springboard for a last hour rebound to intra-day highs.

Today we learned that the Fed, as expected, raised their Federal Funds rate from zero to +0.25%, however, I could not find any explanation as to how that tiny change will fight 7.9% runaway inflation.

ZeroHedge added some color by explaining that the Fed is way behind the curve with any inflation fighting efforts, because the last time the CPI was at the current number (1982), the Fed Funds rate was at 13%, as this chart shows.   

Makes me wonder how they possibly can expect that such a tiny hike will make a difference. Of course, it won’t, and we all know that any serious attempt to extinguish the inflation monster via a serious increase in rates would instantly prick the various bubbles and destroy the financial and real estate markets.

What caused the markets to stage a comeback late in the session? The Fed expects 6 more rate hikes in 2022, as did the market, or one at every meeting. Yet, once the word was out, rate hike odds plunged, and set the stage for the late rebound, which ZH explained this way:

Because with even the Fed now forecasting a big slowdown to growth coupled with a surge in inflation…

… the most likely outcome now is stagflation. This immediately manifested itself in a plunge in 30Y yields…

… culminating with the 5s10s inverting, a clear sign that a recession – the same recession which the Fed hopes to induce to crush commodity demand – is now coming.

… confirming that the Fed, which was trapped long before today’s rate hike, will be forced to ease and/or resume QE in the not-too-distant future even as inflation continues to rage. Translation: policy error.  

In short, the more hawkish Powell gets, the bigger the liquidity firehose he will have to unleash in a few months when the economy plummets into an all-out recession, if not depression.

There is a good chance that, if markets continue to view this as a positive for stocks, we may find ourselves back in domestic equities—if only on a temporary basis, and before the bottom drops out.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

The day started with another rollercoaster ride, as equity futures first plunged, along with markets in China and Europe, but a sudden U-turn, due to changing sentiment, started the ramp-a-thon, even though the scheduled Fed’s rate hike tomorrow represents the uncertainty on deck.  

As a result, and despite the bear’s relentless efforts on wiping out early rallies during the past 3 trading days, stocks finally found some relief, and the bullish theme survived with the major indexes finally scoring a win.

Despite US Producer Prices soaring at double digits for the first time, as ZH pointed out, the rise ended up being +10% YoY in February (vs. +9.7% YoY in January). When looking at the MoM data, this is the 21^st straight month of increases, a trend which does not seem to have ended.

Supporting equities was weakness in the inflationary sector with Crude Oil dumping -7.5% to under $100, which also affected the energy ETF VDE and the commodities arena. DBC had given us an astonishing runup of some +23% in a mere 6 weeks, but it then crashed -13%, in the process triggering our trailing sell stop and sending us back to the sidelines.

Bonds were having a bloodbath on their own, which ZH described as yields taking a straight shot higher after an early sell-off, which left the 10-year at its highest since July 2019.

The US Dollar meandered and closed a tad lower, while Gold could not hang on to recent gains and slipped back to $1,917, down -2.21%.  

In case, you find all this confusing and are wondering why stocks really rallied, here’s ZH’s straight forward explanation:

And so just to clarify – stocks rallied today… because enough rate-hikes are priced-in to guarantee a recession… which assures rate-cuts!

Go figure…

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

As we’ve seen recently with almost regular frequency, early rallies suddenly reversed, got wiped out and turned into losses. Today was no exception when a 300-point surge in the Dow hit the skids, and south we went. The Nasdaq took the biggest hit with a -2.04% loss.

Oil, commodities, and gold gave back recent gains even as uncertainty reigned yet hope of a possible oil trading arrangement by an American company with Venezuela (yes, that sanctioned Venezuela) was said to potentially provide relief.

Be that as it may, markets overall continued to be in disarray with a crazy week on deck, as ZeroHedge pointed out:

A Fed rate hike, a Russian default, a meeting between the US and China, even more sanctions against Russia, the first double-digit (10%) PPI print in decades, a big drop in retail sales, a freak surge in covid across China, oh and a $3.3 trillion notional option expiration on Friday and all happening with liquidity at record lows. Yes, this week will be insane.

China’s stock market had its worst day in 6 years, in part due to its chummy relationship with Russia, a surge in Covid cases, including a lockdown, and regulatory issues.

Apple took a hit and dropped below its 200-day M/A, as traders worried about the shutdown of the Shenzhen Foxconn factory, which could lead to another supply chain shock for the world’s largest company.

For sure, gold turned out not to be a “safe haven”, at least not for today, as the precious metal got spanked and lost -1.5%.

Bond yields soared, as prices crashed, with the 10-year rallying over 14 bps to close at 2.14%, ahead of the Fed meeting in 2 days. The markets are now expecting 7 rate hikes, due to the inflation tsunami which, if implemented, will translate into enormous distress for stocks going forward.  

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REALITY DOMINATES OPTIMISM

[Chart courtesy of MarketWatch.com]

1. Moving the markets

Optimistic traders, who followed the latest firehose of news headlines and pushed the major indexes higher at the opening, had to face reality eventually, because actual happenings erased the early enthusiasm.

Not helping matters was the fact that the number of unhappy Americans had increased, as measured by the US Sentiment index. Joined by current economic conditions and inflation expectations, the numbers dropped to lows last seen in 2011, as this chart by Bloomberg shows.

That translated into another early rally biting the dust with the Dow notching its 5^th straight week of losses due to the Russia-Ukraine war uncertainties keeping the bears in charge.

Added MarketWatch:

Russian President Vladimir Putin said Friday “certain positive shifts” have occurred in the talks between the Kremlin and Ukraine, however, a ceasefire has not been negotiated. Meanwhile, President Volodymyr Zelenskyy reportedly said Ukraine has reached a “strategic turning point” in its war with Russia.

In other words, nothing has been resolved and the adage that “hope is not an investment strategy” was validated again. For the week, the Dow lost 2%, the S&P 500 dropped 2.9%, and the Nasdaq fared the worst by giving back 3.5%.

Some biased news reports are now pushing the narrative that YoY consumer price increases were Putin’s fault, a notion that was quickly dismissed and supported by this chart.

While bond yields soared in Europe all week, the situation was not much better here in the US, where yields as well spiked higher thereby causing bond prices to crumble. This turned into a nightmare for those holding bonds to offset equity weakness, a theory that has bit the dust on many occasions in the recent past.

Gold slipped early on, rebounded but still lost its $2k level by a small margin, but it remains the real “safe haven” once again, as negative yielding debt worldwide is simply not the place to be.

After all, would you loan someone $100, with him promising to pay you back $98? That’s what negative yielding debt translates into.      

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