1. Moving the markets

Despite a shaky start, the major indexes found support and managed to overcome the September doldrums, at least for this day. Bullish momentum surfaced with equities accelerating to the upside during the afternoon session, and all three indices closed the day with solid gains.

While the battle between Small Caps (VBK) and Value (RPV) continued unabated, both gained, but the latter outperformed the former by a 2:1 ratio. Helping to stabilize bullish sentiment early on was the Empire manufacturing index, which not only accelerated in August but also beat 18 consensus estimates.

Anxiety about the upcoming Debt ceiling discussions, were moved to the front burner again, yet did not hamper equities but pulled the US Dollar lower, while pushing bond yields higher with the 10-year closing at the 1.3% level.

This combination did not work well for Gold, which slipped and lost its $1,800 level again.

In the end, as Bloomberg charted here, inflation remains with us, with the Industrial Sector Surprise Index limping lower, which translates into the dreaded “S” word, namely Stagflation. Hmm, as Zero Hedge put it, that could be the Fed’s worst nightmare scenario.

1. Moving the markets

Except for yesterday, we have seen the pattern of an early bump getting pounded in the afternoon during all last week. While Monday instilled some confidence in traders’ minds that the bullish meme is still alive, that mantra was smashed today with the major indexes spending most of the session below their respective unchanged lines.

Even a better-than-expected inflation report could not stop the bears from taking over and sending the indexes to another red close. Despite the downward trend during 6 out of the last 7 sessions, the losses were moderate and certainly not out of line given the relentless march higher during this year.

The CPI came in slightly below expectations at 0.3% MoM vs. 0.4% MoM expected and printed at 5.3% YoY, which was in line with forecasts. Still, this is a significant jump, despite one analyst calling it “continued easing in the inflation piece without deterioration in the economic outlook.”  We’ll revisit that wishful thought next month.

There was no place to hide, as “red” was the dominant color of the session, with the Dow and Small Caps having their worst day since mid-July, as ZeroHedge posted, but “value,” as represented by RPG, had its own issues by giving back just about all of yesterday’s gains.

Bond yields plummeted with the 30-year heading to 6-week lows. The US Dollar index swan dived, reversed, and recovered all its early losses. Every bit of this uncertainty proved to be a boon for gold, with the precious metal not only gaining 0.68% but also climbing back above its $1,800 level.

With Friday’s quadruple witching hour (options expirations) on deck, it looks like volatility will be with us for a while.

1. Moving the markets

For a change, an early rally maintained its momentum throughout the session, despite a temporary mid-day pullback, with two of the three major indexes finally eking out a gain, following five days of losses. The Nasdaq trailed and closed slightly in the red, after dancing around its unchanged line all day.

Small Caps dipped but “value” ripped, with RPV gaining a solid +1.56% after nibbling at its trailing sell stop last Friday.

Still, today’s bounce back was subdued and a far cry from convincing traders that the bullish theme is back on. After all, we are in the middle of one of the historically most volatile months, during which anything is possible. The S&P 500 was saved only by late-session bidding, which pulled the index out of the red.

Spraying to all fields:

Bond yields dropped, as nervousness over the upcoming debt ceiling debacle moved front and center.

The US Dollar bounced without clear direction but managed to hang on to modest gains.

Gold popped and dropped but ended slightly higher yet still short of recapturing its $1,800 level.

Inflation is here to stay, despite jawboning to the contrary, as the Commodity Spot Index rallied to a 10-year high.  

This week’s posting schedule will be slightly different due to me being out of town on Friday. You can see the latest update here.