[Chart courtesy of MarketWatch.com]

1. Moving the markets

Traders continued their struggle of determining whether Friday’s comeback rally was truly indicative of stocks having found a bottom or just experienced another dead-cat-bounce. While I believe the latter is the case, we could see more upward momentum through the end of this quarter.

Today, markets were just aimlessly chopping around and digesting the various news items that simply added to intra-day volatility, of which we might see more during this week. Not helping matters was the plunge in the Dallas Fed index, which measures the Manufacturing business activity and the corresponding forecast, neither of which showed optimistic numbers.

On the other hand, as ZeroHedge reported, the Economic Surprise Index showed some good news in that it ticked up slightly. That tiny little improvement was enough to send Rate Hike Expectations higher, as hawkish views were suddenly dominant again.   

In the end, the major indexes lost some of Friday’s mojo and closed lower, while last week’s short squeeze ran out of ammo. Bond yields reversed as well and headed higher with the 10-year adding 7.6 bps to close at 3.21%.

The US Dollar ended the session unchanged, while Gold popped and dropped and closed a tad lower.

Nothing was gained and not much was lost during these few hours of meaningless meandering.  

[Chart courtesy of MarketWatch.com]

1. Moving the markets

Bullish attempts to keep yesterday’s comeback alive ended up failing, as the major indexes surrendered early gains and ended up the hugging their respective unchanged lines with not much to show for.

Initially, stocks had blasted higher, despite weakness in the futures markets. For a while, it looked like we were facing another “bad news is good news” scenario, as Fed President Harker opined that the “US economy might see a modest contraction in growth,” along with “we could have a couple of negative quarters.”  

This negative talk was immediately translated as being a positive for the markets, as it would move the recession into the more immediate future, which would then result into inevitable rate cuts and a new QE program. That “should” translate into a revival of the bull market, or so the theory goes.

Regarding inflation, the Fed is way behind the curve and needs to implement a far more aggressive tightening cycle. Analyst Simon Ree tweeted this amazing stat:

Once inflation goes above 5%, it has never come back down without the Fed Funds rate exceeding the CPI.

As ZH explained, the problem is that the current CPI is 8.58% and the Fed Funds rate is only 1.58%. Graphically, it looks like this. That means the Fed would need to hike at least 7% until inflation would start to roll over and potentially allow for the so-called soft landing. Good luck with that…

Despite falling bond yields, equities could not sustain any upward momentum. The 10-year plunged 12 bps to close at 3.16%. The US Dollar dumped after yesterday’s pump, while gold meandered aimlessly but closed a tad in the green.

Sure, we could see another short squeeze into the end of this quarter, but in my mind, its duration will be questionable.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

It comes as no surprise that the major indexes would eventually manage a bounce back from the brutal losses not only YTD but also from last week, which saw the S&P 500 surrender -5.8%—its worst 5-day stretch since 2020.

A more aggressive stance on interest rate hikes by the Fed, and increasing odds of a recession, combined forces to give the bears the upper hand. Considering the ever-worsening economic numbers, any rebound may be short-lived, but opinions also abound that the sell off was way overdone.

For sure, rebounds or rallies into the end of any quarter occur with great regularity, which means we’ll have to wait till July to get a better handle on whether this is simply a dead-cat-bounce or a true bottom. I believe it’s the former and not the latter.

Looking at economic numbers, you must wonder what drove today’s rally. Existing Home Sales tumbled to a 2-year low, according to ZeroHedge, with the NAR warning that “worse is to come.”

Adding to that negativity was a deteriorating Chicago’s National Activity index. As a result, we can see that the Economic Surprise index keeps worsening. Bond yields were mixed with the 10-year adding 6 bps to close at 3.30%. The US Dollar slid, but it was not enough to lend support to gold, as the precious metal lost -0.42%.  

In the end, today was simply a reprieve for the buy-and-holders, but keep in mind that one bullish day does not indicate a directional trend change.