1. Moving the markets

Despite the Dow and S&P 500 climbing into record territory right after the opening, it was only the Dow that maintained its bullish momentum into the close. The S&P 500 floundered and battled with its flatline but managed to close a tad above it, while the Nasdaq stumbled in the red throughout the session.

Supporting the Dow was the Senate’s passage of the $1 trillion infrastructure package, which traders assume to assist those stocks benefiting from economic growth. At least that’s the theory, but as I have pointed out before, the economy needs a boost, as peak growth has decelerated.

Overall, markets were mixed with Small Caps (VBK) taking a hit of -0.78%, while “value,” as represented by RPV, added a solid +1.32%. That performance was outdone by the Commodities Index (DBC) with +1.81%, as inflation persists and creeps through that sector.

Bond yields continued their charge higher with the 10-year reaching almost 1.35%, which is a massive rebound from the lows of 1.12% just a few days ago. Given higher yields, it’s no surprise that the US Dollar ramped higher and has now reached a point that is close to its March highs.

Gold managed to break even and is trying to find some base from which to launch a new attack at its recently lost $1,800 level.

Leave it up to ZeroHedge to come up with another historical trend analysis, this time comparing the current S&P 500 performance with that of 1987:

I for one can’t wait to see if history repeats itself.

1. Moving the markets

The growth meme was the talk of the day on Wall Street, as concerns mounted again that not all is well in the world of economics.

Things started on a shaky foundation in the futures markets, with all major indexes in the red, while gold got hammered almost 3%, as one entity unloaded $4 billion in gold contracts. This was obviously an act of manipulation because an investor concerned with not moving markets adversely would liquidate a holding slowly and meticulously and not dump it all at once.

As the chart above shows, a mid-day rebound pushed the S&P 500 back above its flatline, but it slipped into the close with a minor loss, with the Dow following suit. The Nasdaq showed more bullishness and eked out a small gain.

The US Dollar continued its upswing from last Friday but wavered during this session yet gained modestly in the end. Not helping gold nor stocks was the 10-year bond yield which, after an early pullback, found some momentum and reclaimed its 1.3% level.  

Small Caps (VBK) slipped moderately while Value (RPV) gained a tad, as financials (XLF) were favored (+0.26%) due to rising bond yields.

Looking at the big picture, the markets went nowhere with some gainers offsetting some losers.   

1. Moving the markets

A variety of factors combined to knock down equities with the 10-year bond yield getting whacked around like a rubber ball in a trampoline factory.

First, General Motors dropped some 7%, which weighed heavily on the broad market as the automaker missed earnings expectations, but it managed to issue a positive guidance for the remainder of the year.

Second, in economic news, the private ADP payroll survey confirmed a weakening environment with a meager gain of only 330k jobs for July vs. expectations of 653k. This could be a harbinger of things to come when the Labor Department’s official jobs report will be posted on Friday. However, at times, one report is not indicative of the other.

Third, an early short squeeze in the bond market set up a negative tone with the 10-year yield dipping to below 1.13%, after which all hell broke loose. The cause was remarks from Fed Vice Chair Richard Clarida opining that “the Fed may be much closer to tightening than last week’s FOMC release implied.”

Ouch, no one saw that one coming and bond yields responded to that much hawkishness by spiking straight up to almost 1.19% before easing back to 1.16%, as this chart shows.

The US Dollar index first dumped to 6-week lows and then pumped on Clarida’s hawkish remarks. Gold followed suit and rode its own rollercoaster and ended up slightly in the green. Despite this wild ride, the losses for the major indexes were moderate with the Nasdaq escaping unscathed.

Observing equity reaction to even the slightest hint of rising bond yields just goes to show the market’s total dependence on low rates/yields. Unfortunately, yields will have to go up at some point, as rising rates will be the only tool available to deal with the ever-increasing inflationary threat.

If you were around in 1980, you’ll recall that this is how then Fed Chairman Volker reigned in the crisis. And no, this time will not be different.