1. Moving the markets

An opening puke in the markets gave way to a rebound back above the unchanged line, but that gain was short lived, and down we went in the afternoon session.

A last hour rebound reduced some of the losses, but the three major indexes ended up in the red with the Nasdaq producing the worst performance with a beating of -2.11%.

Much hope was given to Fed head Powell’s speech, but that turned into a nothing burger with no indication of any assistance, like how to deal with the recent bond volatility, that could have had a soothing effect on the bond market and by extension on the stock market.

General platitudes prevailed with only two sentences indicating something worthwhile, as ZH opined:

“We monitor a broad range of financial conditions and we think that we are a long way from our goals.”

“I would be concerned by disorderly conditions in markets or persistent tightening in financial conditions that threatens the achievement of our goals.”

That lack of specifics in the face of soaring bond yields, with the 10-year now well above 1.5%, and staying there, pulled equities back below the unchanged line and kept them down.

At the same time those rising yields also wiped out the early climb in gold, with the US Dollar giving the assist via a rally to November highs.

The major indexes have now slipped into the red for the year with the Nasdaq now in correction territory, which is defined as a 10% drop from its recent high.

In the end, the Fed failed to do what it does best, namely provide reassuring comments to investors. The lack of such makes we wonder if they have lost control, did not want to assist, or simply ran out ammunition for the time being.

1. Moving the markets

The tech sector was spanked today, as rising bond yields raised concerns about high equity valuations and a potential increase in inflation. The benchmark 10-year bond yield jumped as much as 8 basis points intra-day to 1.49% but pulled back slightly and finished the session at 1.47%.

I have pointed to surging yields as the Achilles tendon of equities, which can bring this tech bull market to an end in a hurry. CNBC called it this way:

The continuous rise in bond yields is raising concerns about equity valuations and a pickup in inflation. Higher bond yields can hit technology stocks particularly hard as they have been relying on easy borrowing for superior growth.

Bucking the sell-off has been the value sector, which I discussed in my most recent client newsletter. Our latest portfolio addition, namely IJS, did exactly that today by advancing +1.28%, while all three major indexes ended in the red.

Especially the Nasdaq was hit hard, and its price dropped through the 50-day M/A resistance level with the index now being down some 5% from Monday’s exuberant highs.

In economic news, ADP reported that 117k new jobs were added in the private sector, which was far less than expectations of 225k.

The US Dollar climbed as bond yields rose, thereby pushing precious metals down with Gold barely hanging on to its $1,700 level.

Despite Monday’s “feel good” rally (or was it a dead cat bounce?), volatility and uncertainty have increased with the markets being in a mess and impossible to read. That simply means that the next move has a 50/50 chance of being either up or down.

Have your trailing sell stops identified, and be ready to pull the trigger should the need arise.

1. Moving the markets

The futures markets got rattled early on by comments from China’s top banking regulator jawboning that “he’s very worried about risks emerging from bubbles in global financial markets and the nation’s property sector.”

That’s all it took to put the fears of further tightening, aka higher interest rates and bond yields, on the front burner with the effect that traders again started worrying about too much exposure to risk assets (stocks). And suddenly, yesterday’s warm and fuzzy feelings were gone, as no follow-through buying materialized.

As a result, the regular trading session started with a drop below the unchanged line, and despite various attempts to push the major indexes into the green, all efforts failed. In fact, the dive into the close and to the lows of the day does not indicate much confidence.

The Nasdaq, after being the leader in yesterday’s comeback fest, fared the worst and surrendered more than half of yesterday’s gains. Portfolio wise, Gold saved the day and ended up +0.57%, thanks to drops in the US Dollar and 10-year bond yields, which dipped below 1.41%.

Added CNBC:

Still, some investors believe it’s inevitable that yields will trend higher this year amid an economic recovery and potentially more fiscal stimulus, which could shrink stock multiples.

Another gigantic short-squeeze put the hurt on a “hedge fund VIP”, the damage of which is still unknown but rumors of liquidation abound. Look at this chart and imagine that you had a leveraged short position. Ouch!

Here again, when hedge funds are squeezed, and are forced to liquidate even their most favorite assets to raise cash to meet margin calls, early weakness in the markets can accelerate as it did today.

It’ll be interesting to see if there is more fallout to come, such as we’ve seen with the recent GME debacle.

1. Moving the markets

For a change, the positive mood in overnight futures trading, carried through into the regular session with equities surging out of the gate without so much as taking a pause.

Turns out that after last week’s rut, some Central Banks (CBs) around the world were not taking any chances. Some doubled the amount of daily QE (Quantitative Easing) thereby causing bond yields to plunge, which gave equities a much-needed boost.

Other CBs joined the party not with definitive action but via using the effective tool of jawboning. The ECB, for example, said that it will not tolerate higher yields and expects Fed head Powell to calm markets as soon as this week.

And there you have it. Any possibility of a free market setting rates and trading based on price discovery has forever been banned, and we continue to live in a managed market environment, an opinion I have presented ad nauseam.

All last week’s concerns are now forgotten, and the major indexes jumped into March and closing solidly in the green. Hope of economic reopening along with vaccine optimism helped the tech sector to sport gains of some 3%.

With bond yields heading lower, last week’s inflation concerns have now been moved to the back burner, but should not be forgotten, as US PMIs (Purchasing Managers Index) signaled that “record-breaking inflation is on the way,” as ZH described it.

The red line in the sand, above which bond yields will become an issue for stock prices, is the 1.45% level, as Bloomberg points out in this chart. Today, we lucked out in that this level was not breached to the upside.

Right now, the bulls seem to be in charge, and we will make our adjustments accordingly.