[Chart courtesy of MarketWatch.com]

1. Moving the markets

Another early rally bit the dust with the major indexes surrendering morning gains and the S&P 500 and Nasdaq also giving back yesterday’s advances.

Added CNBC:

The S&P 500 is down 2% for the week on inflation fears as a Tuesday CPI report showed price increases not seen since 1981. The Nasdaq Composite is off 3.7% and the Dow is flat for the week.

Spiking bond yields pulled the rug out from under equities, with the 10-year adding 13 basis points to push the rate to 2.83%, a multi-year high, as inflation exacted its pound of flesh—again. The widely held 20-year bond ETF TLT got spanked again and lost 2% on the day bringing its YTD losses to -18.51%. Ouch!

As much as traders would have liked to push the 8.5% CPI and 11.2% PPI numbers on the back burner, the reality of a variety of bearish data points set in, as well as speculation on how the Fed will now respond, and south we went.  

Not helping the bulls was the release of US Retail Sales Growth, which was the slowest in 13 months with online spending plunging, as ZH pointed out.

Twitter was headline news, as Elon Musk offered to buy the company, but rumors played havoc with the price, as this chart shows, while $2.1 trillion in options expirations did their number on market volatility.

Another roller coaster ride occurred in the ever-ongoing battle between “value” and “growth,”  as well as in the “most shorted stocks” arena, but it the end, it turned out to be a losing week.

As yields rose, the US Dollar stormed higher and pulled gold slightly lower. The energy complex gained for the week, with oil prices surging, including Natural Gas, which almost went vertical.  

I hope you will enjoy a calm Easter weekend, because the markets will be anything but calm, when trading resumes next Monday.   

[Chart courtesy of MarketWatch.com]

1. Moving the markets

After three consecutive losing sessions, the major indexes managed to score a win, despite another horrific inflation number, which traders simply overlooked. Some corporate earnings came in better than expected (BlackRock, Fastenal, Delta) with the latter one announcing the return to profitability this quarter.

Other airlines, hotel, and travel stocks joined the rebound, which was led by the Nasdaq with a 2% gain.  

The much-awaited Producer Price Index (PPI) jumped a mind-boggling 11.2% YoY in March, while the MoM gain came in at 1.4%, far higher than the expected 1.1%. This follows yesterday’s CPI number, which surged 8.5% YoY in March.

As strange as it may sound, but in the face of the above numbers, bond yields pulled back with the 10-year settling at 2.697%, down 8 basis points.

Crude Oil ripped higher despite the greatest SPR (Strategic Petroleum Reserve) release ever, which was pushed into the background on news that Russia is shutting down oil production at a more rapid rate. That will likely reverse the tiny reduction in gas prices of the recent past.

Gold maintained its upward momentum and is heading closer to breaking its $2k glass ceiling again.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

Despite the CPI coming in at an annual rate of 8.5%, worse than expected (8.4%), the fact that the index increased a horrible 1.2% MoM was simply ignored, as traders, and computer algos were encouraged by the Core CPI (excluding food and energy), which “only” rose 0.3% in March vs. an expected gain of 0.5%.  

That got the bullish juices flowing, and up we went with the Dow at one point being in the plus by over 250 points. However, there was not much conviction behind the move, especially after the Fed’s Lael Brainard confirmed her hawkishness, as ZH noted:

The Fed will move “expeditiously” to raise interest rates and return surging inflation to its 2% target, and that a decision on the balance sheet “could be as soon as May, which would lead to reductions in that balance sheet starting in June.”

That reversed the early optimism, and down we went with all 3 major indexes diving into the red, giving the bears something to cheer about. An early assist came from a short squeeze, but that attempt died on the vine.

After setting early intra-day highs, bond yields slipped with the 10-year closing at 2.725%, which was quite a drop after having touched its multi-decade downtrend resistance level of 2.83%, as ZH pointed out.

The US Dollar dumped and pumped and closed moderately higher. The energy sector ripped higher (VDE +1.67%) with Crude Oil back over $100 and the commodity index DBC gaining +2.96%.

Gold danced to the beat of its own drummer by ignoring the dollar’s comeback and gained a solid +1.14% for the day, thereby again approaching its $2k level.

Mainstream media has been focusing on who to blame for this inflationary environment with the fingers pointing to “Putin-flation,” an accusation that this chart by Bloomberg disputes.

Yes, a picture is truly worth a thousand words.

[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…