1. Moving the markets

The rebound continued into its second day with Monday’s losses now having been completely recaptured by all three major indexes. Better-than-expected earnings helped power the revival with Coca-Cola and Johnsen & Johnsen stoking the bullish attitude.  

The bounce-back was broad based with Small Caps (VBK) adding another +1.31%, but they were slightly outgunned by “value” (RPV), which rallied +1.62%. If the commodities index (DBC) is any indication, inflation is still alive and with us, as this index jumped +2.00% on the session.

The financials (XLF) participated as well and raced ahead by +1.70% propelled by rising bond yields with the 10-year touching the 1.30% level before pulling back. The US Dollar slipped, but climbing yields were too much of a hurdle to overcome for Gold, so the precious metal gave back -0.39% and is now only barely hanging on to its $1,800 level.

Again, the markets will have to deal with a split in direction between the S&P 500 and the 10-year bond yield, as Bloomberg shows in this chart.

Right now, it’s anyone’s guess how this relationship will normalize.

1. Moving the markets

The futures markets last night already indicated positive numbers, a trend which continued into the regular session. The major indexes opened higher and never looked back, which resulted in a solid bounce back after yesterday’s thrashing.

Most of Monday’s losses were recovered, as dip buyers stepped in to take advantage of the Dow’s worst day in some eight months. Prior concerns, that a Covid revival would slow down the economic rebound, was alleviated by rising bond yields, with the 10-year crawling back above its 1.20% level, thereby indicating expansion rather than contraction.

Of course, as fickle as the markets are, this merely represents just one moment in time, and opinions could change in a hurry. However, right now on this Tuesday, traders viewed events through rose-colored glasses.

The rebound was broad based with financials staging a nice comeback, as XLF stormed back and scored a +2.53% gain. That was closely followed by RPV (value), which added +2.44%. Small Caps (VBK) stole the limelight with a resurgence of +2.67%.

And, as usually is the case during sharp rebounds, a monster short-squeeze contributed to today’s advances. The US Dollar index ended only slightly higher due to a sell-off into the close.

The precious metals played in opposite ballparks. Gold managed to eke out a small gain and remain above its $1,800 level, while Silver was taken out behind the barn and spanked into oblivion.

Right now, it looks liked the bulls have gained the upper hand again, or could this graph be describing the situation more accurately?

1. Moving the markets

Concerns, that rebounding Covid cases, especially those identified as a Delta variant, could negatively affect an already stumbling recovery in economic activity, pulled the rug out from under the bullish theme and spanked the major indexes along with the broad market.

At one point, the Dow was down over 900 points but managed to pull itself out of a deep hole by “only” ending down some 726 points or -2.09%. The Nasdaq fared the best by giving back a more modest -1.06%, followed by the S&P 500 with -1.59%.

Gold, which was in the green for part of the day, succumbed to selling pressure by slipping -0.14% but holding on to it $1,800 level. The worst performers turned out to be energy and industrials with Small Caps losing as well but not getting hammered as bad as “value.”

The beneficiary of this Puke-A-Thon were bond yields, which plunged to a level last seen in February with the 10-year breaking below the 1.20% level. As I posted Friday, if there is no “breadth” in the markets, yet the rally continues, it may be short lived. That was again confirmed today, as this chart demonstrates, with the fallout worsening.

So, what caused the late small rebound? ZeroHedge speculated that the Plunge Protection Team (PPT) might have been invited to the White House again, hoping for the same result as last time. We may find out tomorrow if a “two-peat” is about to happen.

In the end, the question remains if this diversion of bond yields from the S&P 500 will result in more selling, as the jaws snap shut like last year, or will yields rise to justify the current lofty equity levels?  

We will find out in due time.