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.  

1. Moving the markets

A sloppy opening and quick pullback put the major indexes on the defensive with all three of them sinking into the red. It was a reversal from yesterday’s action when an early pump turned into a late dump.

Bond yields proved to be the stabilizing factor with 10-year yields rebounding from Monday’s drop to nearly five-month lows, which was repeated early this morning, and giving stocks a good enough reason to follow suit. Remember, that sliding bond yields indicate economic weakness, while rising ones, within reason, account for economic expansion.

Factory orders printed better-than-expected and lent support to the theme that the economy is still in expansion mode, at least for this day. Lately, econ reports paint at best a mixed picture, which is why we are seeing some of these extreme moves in the markets.

The US Dollar bounced off its lows and, together with rising bond yields, kept gold in check with the precious metal ETF GLD closing just about unchanged.

The ongoing battle between Small Caps (VBK) and “value” (RPV) was clearly won by the latter with a solid gain of +1.37%, while the former barely stayed in the green.

August started the month with two opposite trading days and increased volatility, as the latest headline news continues to be the dominating factor for market direction.