[Chart courtesy of MarketWatch.com]

1. Moving the markets

An initial bounce hit a brick wall and turned into a sudden dive with early gains being eradicated in a hurry. But, as we’ve seen many times before, a late morning rally pulled the major indexes out of a deep hole and pushed them back into the green with the Nasdaq lagging and barely reaching its unchanged line.

The S&P 500 touched new record territory but backed off into the close. In defiance of many predictions by “experts,” bond yields continued to tank, as the meme, that “peak economic growth” might have already happened, continued, with the 10-year yield now closing at 1.316%, its lowest level since February 19^th.

On the economic front, we learned that, even though Job Openings hit a new record, there are still some 11 million Americans, who are collecting various pandemic emergency unemployment claims, as ZH indicated. Go figure…

Why did the markets stage a ferocious rebound? While no one has a conclusive answer, ZeroHedge, most likely tongue in cheek, pointed to this graphic explanation.

As big tech rallied early on, SmallCaps were again the loser, while “value” stopped the recent bleeding by just about closing unchanged. The US Dollar was engaged in his own roller coaster ride and ended slightly higher.

Lower bond yields and a fairly stable US Dollar allowed Gold to not only register a second consecutive day of gains, but also reclaim its $1,800 level, although by only a small margin.

I think the elephant in the room continues to be inflation, but more importantly, once acknowledged by the Fed, what will be their plan of action? Right now, they appear to simply let things ride. But for how long?

Be aware that in the initial stages of an inflationary cycle, equities will benefit. But there comes a point in time, when the rug will be pulled out from under them and show that nothing but hot air has supported this bubble.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The bullish move into July hit a brick wall this Tuesday, as some sense of reality set in, namely that all good things must come to an end, such as the S&P’s 7-day winning streak, even if only on a temporary basis. Such was the case today, as the major indexes took a dive right after the opening with only the Nasdaq showing signs of strength, which eventually gave way to bearish sentiment.

Nevertheless, the tech sector held up best, while “value” and SmallCaps were clobbered with especially the former taking the brunt of the beating. After this Holiday weekend, concerns rose that we may have seen the best of the economic recovery and that the future may look less bright.

Supporting that view was the Services Index’s (ISM) data tumbling this morning indicating the potential of stagflation, a period defined of higher prices and no growth. This had a huge effect on bond yields with the 10-year diving below the 1.4% level thereby confirming the much-dread “S” word.  

Added CNBC:

Investors are juggling several signs that the rapid economic growth from the depths of the pandemic could be peaking. The ISM Services index, a major gauge of the services sector, slowed to 60.1 in June from a record in the prior month, data released Tuesday showed. Economists polled by Dow Jones expected a print of 63.5. This follows Friday’s jobs report, which showed the unemployment rate rose back up to 5.9% against the 5.6% expectation.

Amusingly, the always optimistic crowd on Wall Street currently has a year-end consensus target of 4,276 for the S&P 500, which represents an approximate 2% loss from current levels. Huh? But these folks have been wrong before, so this symbolizes nothing but groupthink.

In the end, it was only the Nasdaq, which managed to crawl back above its unchanged line, while the S&P and Dow sported only modest losses after they rebounded off their intra-day lows. Nothing saved SmallCaps and “value.” They simply had a bad day with “growth” clearly coming out on top thanks to crashing bond yields.

Gold had a good day with a +0.79% gain, as the weakness in bond yields overpowered the strength in the US dollar and helped the precious metal to rally but not quite enough to reclaim its $1,800 level.