1. Moving the markets

Well, that did not last very long. Even though the Fed’s most dovish words yesterday were able to soothe markets and produce a bounce back from early losses, today was a different day.

Bond yields suddenly surged, up 11 basis points intraday to 1.75% for the 10-year, but they came off that high to close up +7.5 basis points. Confusion reigned in the markets, and traders and investors alike scrambled to grasp where that volatility came from.

Added MarketWatch:

By confirming the Fed’s willingness to stand pat, even if inflation saw a temporary surge beyond 2%, investors may be raising the probability the economy will run hot in the next few years without having to worry about the central bank pulling away the market’s punchbowl. In that scenario, long-term bond yields would have little protection against the risk of an inflationary surge.

And that sums it up perfectly. Inflation at current levels is far higher than what the Fed admits and any considerable improvement in the economy will only add to that worry, the fear of which is now apparently reflected in the pricing of bond yields.

Tech shares got hammered with the Nasdaq plunging -3% with only the financial sector (XLF) closing higher by +0.52%. The S&P 500 tumbled a more moderate -1.48% and the Dow fared the best, down only -0.46%.

Economic data were mixed at best with weekly jobless claims at 770k turning in another poor number compared to expectations of 700k. Looking at the bigger picture, it means that over 18 million Americans are still dependent on government jobless benefits, a number that has not changed materially for four months, according to ZH.

The US Dollar index recovered from yesterday’s drop and headed higher, but spot gold managed to hang on to early gains, yet the gold ETF GLD ended in the red.

Tomorrow, we may see another kick up in volatility, as another market event is on deck, namely the quad-witch (quadruple expiration), when we get the simultaneous expiration of stock index options, market index options, individual stock company options and single-stock futures.

1. Moving the markets

As I suggested yesterday, the Fed’s guidance on interest rates could push markets one way or another. That’s exactly what happened by stocks exploding higher, with the S&P 500 and Nasdaq having to crawl out of an early hole, after the Fed’s statement indicated more dovishness than expected.

Postulated ZH:

And since it is now painfully obvious that Powell will never again do anything to rock the boat, we are certain that an SLR extension (Supplementary Liquidity Ratio) is coming in the coming days, the news of which will unleash another buying spree…

The Fed delivered and the while the markets were pleased, the rally was only modest, considering the anxiety leading up to the event.

The US Dollar Index plunged, and the 10-year bond yield slumped, after an early pump and ended the session at 1.645%, down 2.7 basis points. Both events proved to be a boon for the Gold ETF GLD, which took top billing for a change with a gain of +0.71%.

We’re now within spitting distance of the S&P 500 reaching another milestone, namely its 4,000 mark. I expect that several attempts will be necessary before this glass ceiling can be broken.

1. Moving the markets

“Uninspiring” best describes today’s session during which we saw the Nasdaq storming ahead of the other 2 major indexes by sporting early gains of more than 1%. Mid-day, the positive vibes stopped, and the Nasdaq suddenly plunged into the red but managed to crawl out of that hole and slightly into the green.

The Dow spent the entire day below its unchanged line, while the S&P 500 vacillated aimlessly without making any headway; in other words much ado about nothing.

Not helping the markets was JP Morgan’s downgrade of SmallCaps, which pulled all of them, the growth- and the value kind, off their recent highs after announcing a “tougher road ahead for that arena,” citing that “their extraordinary performance is coming to an end.”

While that is not a sure thing, at least for today all of them dipped into the red.

Things went haywire in bond land as well when, after an impressive 20-year auction, the yield suddenly plunged leaving most analysts scratching their head and looking for an explanation—but unable to come up with one.

The latest economic news did nothing to spark the mood with US Industrial Production unexpectedly plunging in February and Retail Sales collapsing, after a huge surge in January.  

Maybe it was simply nervousness about tomorrow’s upcoming event of the week, namely the Fed’s guidance on interest rates and inflation. Markets are on the edge and any “hawkish” tones could lead to a sell off, but any “dovish” undertones will support the bullish theme.  

1. Moving the markets

An early pop was shadowed by a mid-day drop, which was then followed by one more pop in the indexes with the Dow scoring another record high as economic reopening optimism prevailed.

The early plunge was the result of negative news from several European countries about blood blot concerns by vaccine developer AstraZeneca.

But equities recovered when the #1 party spoiler, namely rising bond yields, did not come into play today. The 10-year slipped almost 2 basis points but remains stubbornly above the 1.6% pain threshold, but traders were simply pleased by not seeing further spikes.

Still, the tug-of-war goes on between those who believe that equities should be able to absorb roughly 2% yields, while others call for a 20% collapse in the Nasdaq should this level be reached.

Therefore, Wednesday’s upcoming verdict by the Fed regarding interest rates will be dissected down to the last word. Will they fine-tune their interest rate outlook, which currently does not consider any rate hikes through 2023?

Any unexpected wording will affect markets instantly.