[Chart courtesy of MarketWatch.com]

1. Moving the markets

The major indexes built on yesterday’s comeback rally with the Nasdaq again taking the lead by gaining 1.41%. Still, the markets are struggling to find some footing after the New Year’s sell-off.

Rising interest rates have been the culprit that brought the Santa Clause rally to a standstill and a subsequent reversal. For a change, the voracious rise in bond yields slowed down with the 1-year ending the day at 1.75% giving equities a reprieve.  

Fed head Powell testified before a Senate committee this morning as part of his re-confirmation process. He expects supply chain issues to normalize, which should mitigate inflationary pressures this year, and that he would not be afraid to hike rates further than intended should inflation remain high.

The markets took that as a rally cry, because of what he did not say, namely that the words “accelerated changes in policy,” above and beyond of what they already had indicated, were missing.

As a result, the bulls roamed freely and turned a weak opening into a ramp-a-thon with broad gains across the entire spectrum. Both, “value” and “growth” rallied in unison with SmallCaps outperforming. Of course, a continued short squeeze did its part of lending bullish support.   

Easing yields sent the US Dollar lower and gold higher, with the precious metal scoring a chest-pounding advance of 1.33% thereby ending solidly above the $1,800 level.

This tweet below made me laugh out loud because it sums up the relationship between the markets and the Fed:

A tip of the hat to ZH for pointing towards this bon mot.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

Last week’s negative market theme continued this morning when the major indexes took another dive with the Dow being down over 500 points at one moment in time. Dip buyers made an appearance, as the indexes attempted to climb out of a deep hole.

Though they did not manage to crawl back to their respective unchanged lines, except for the Nasdaq, it was a valiant effort nonetheless with early losses being cut substantially.  

Bond yields continued to soar with the 10-year breaking briefly through the 1.80% level but settling at 1.77%. We are now witnessing rising yields meeting a slowing economy with consumers, having spent all of their stimulus checks, taking advantage of their credit card availability and going on a record spending spree, as ZH reported.  

The sell-off was broad with more than 70% of the S&P 500 stocks declining. The mid-day rebound had pure growth ETFs like RPG rally off their lows, along with the tech sector in general, and advance by 0.29% for the day.

The US Dollar index pumped and dumped but closed moderately higher. Surprisingly, Gold was not affected by the dollar’s strength, and the precious metal eked out a modest gain and reclaimed its $1,800 level.

Based on Bloomberg’s Financial Conditions Index, there is more downside on deck. However, I think much depends on how serious the Fed will be to fight inflation with much higher rates and less stimulus. After all, they are the elephant in the room.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

Another up and down day supported the meme that bulls and bears are engaged in a tug-of-war with the latter so far coming out on top. However, today, the forces were more evenly matched, as the major indexes surrendered only a fraction with the Dow faring the worst.

The tech sector was in scramble mode with some of their darlings continuing to slide, which made traders realize that tech will not always be the winner every trading day in 2022, thereby causing the overweight allocations to be adjusted.

The main irritant behind today’s scramble remains the hard to accept fact that the Fed will remove its economic stimulus more quickly than hoped for, which has contributed to the wild swings of the recent days. Odds are now 86% that we will see 3.5 rate-hikes by the end of 2022.

As a result, bond yields continued their climb higher with the 10-year touching the 1.75% level before pulling back to the 1.72% area. For reference, the 10-year ended 2021 at 1.51%. The main beneficiary of this ramp has been the banking industry with the financial ETF XLF adding +1.5% for the session.

The US Dollar chopped around as well and ended slightly in the green, but gold was the dud of the day after getting hammered and losing its $1,800 level again. The precious metal gave back -2.04%.

Can tomorrow’s jobs report give an assist to the bulls?

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