[Chart courtesy of MarketWatch.com]

1. Moving the markets

Following yesterday’s plunge into the close, the bulls found no reason to support the major indexes at the opening today, as they handed the baton to the bears.

Despite dip buyers stepping up to the plate late in the day, there was simply not enough motivation present to drive the indexes back into the green, however, the much-battered Nasdaq came within striking distance.

In the end, today turned into another wild ride with losses being reduced, as a modest rebound attempt soothed traders’ raw nerves. Even though the Nasdaq came close to breakeven, it has fallen nearly 5% in May due to fears of inflation having deepened.

The release of the Fed minutes was on deck today and included the surprise message that “a strong pick up in economic activity would warrant discussion of tightening monetary policy in the coming months.”

Here is the exact wording:

“A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.”

That’s not what traders wanted to hear, since any hint of tightening translates into higher bond yields and subsequently lower stock prices. As a result, Fed head Powell came out after the meeting and tried to soften the blow a little by stating:

The recovery remains “uneven and far from complete” and the economy was still not showing the “substantial further progress” standard the committee has set before it will change policy.

Consequently, the US Dollar went vertical, as the Fed’s taper talk made headlines, and bond yields surged put pulled back slightly into the close. Both actions took the early starch out of gold, but the precious metal still managed to eke out a 0.18% gain.

Volatility has been on the rise, as has uncertainty in the trading community, and it is only Wednesday. Could we see a repeat of last week’s sequence, when the last two trading days appeased the bulls and wiped out most of the losses of the first three?

[Chart courtesy of MarketWatch.com]

1. Moving the markets

Despite desperate attempts to cling to the unchanged line, bearish forces proved too overwhelming today and pulled the major indexes into the red. This was especially disappointing for the Nasdaq, which had sported a solid rally early on but lost upward momentum and ended up diving into the close.

Despite better-than-expected earnings from the likes of Walmart, Macy’s and Home Depot, some econ data provided the offset. Housing Starts plummeted 9.5% to 1.569 million units last month, a worse drop than the 1.7 million number expected.

While growth-heavy stocks have taken a hit lately, value could not right the sinking ship today, as the broad based RPV ETF also succumbed to bearish forces along with Small Caps.

Inflation and its potentially ill effects are on traders’ minds. Much anxiety exists ahead of tomorrow’s release of the Fed minutes from their last meeting, which will be dissected for any reference of what policy makers might be thinking in terms of the recent CPI/PPI data releases.

The US Dollar continued its swan dive imitation and dropped back to its lowest level since January, which also represents a major support point. Once taken out, it’s a long way down to the lows made in 2014.

This brings me to one of the few green closes we saw today, namely gold. With bond yields holding steady, and the dollar getting clobbered, GLD managed to eke out a modest 0.19% gain. As inflationary forces take hold and are eventually admitted to by the powers to be, we may finally reach the moment in time where the precious metal will shine brightly more often.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

Last week was a roller coaster ride with the S&P 500 dropping some 4% in the first three trading days but making up most of it during the last two and ending down only 1.4%.

The Nasdaq fared the worst and continued this trend this morning by leading the other two major indexes to the downside, as an early drop put traders on edge. The rotation out of growth stocks kept punishing the tech sector while benefiting the cyclical and value arenas.

Today’s action showed that Small Caps and QQQs were on the selling block, losing 0.64% and 0.61% respectively, whereas the value ETF RPV eked out a 0.52% gain, along with the Small Cap Value fund IJS, which added 0.58%.

In the end, however, this afternoon’s bounce-back severely reduced the early morning losses, making the red numbers appear less daunting.

Last week’s inflationary numbers of the CPI/PPI releases finally caused some discomfort, which explains not only the above rotations, but also that Gold may after all still have validity in investors’ portfolios. That meme was on everybody’s mind today, as the Gold ETF GLD rallied not only 1.18% but also recaptured its long lost $1,800 level and closed at its highest point since January.

The 10-year bond yield roundtripped and inched higher into the close after an early morning drop. However, we’re still below the highs of last week, which exceeded the 1.7% level when the CPI number was released.

The US Dollar Index eased up after last week’s rally and settled at a level that is close to where it was before bond yields ramped higher last Wednesday.    

With inflationary forces (CPI/PPI) being opposed by an economic slowdown (disappointing job creations), it will be just a matter of time before the dreaded “S” word, as in Stagflation, will be uttered by the mainstream media.

That leaves me pondering: “how will equities react?”

[Chart courtesy of MarketWatch.com]

1. Moving the markets

After three days of relentless selling, the major indexes seemed to find a bottom today, as dip buyers stepped in and gave a long overdue assist. The Dow and S&P 500 took the lead, but the much beaten-up Nasdaq managed a decent showing, along with Small Caps, which had taken a severe beating over the past few days.

For some reason, yesterday’s inflation print, along with spiking bond yields, were viewed in the rear-view mirror, even though today’s PPI showed that April Producer prices exploded 6.2% YoY, far worse than the expected 5.8%. As ZeroHedge pointed out, sequentially, the PPI was shockingly hot, rising 0.6% MoM, which was double the expected 0.3%.

That means inflation is here to stay, when considering Friday’s disappointing jobs report and this week’s CPI/PPI numbers, you won’t have to look far to see the dreaded “S” word (Stagflation) mentioned by those in the know. If you were around in the early 1980s, you saw a similar pattern, namely inflation and no growth. We’ll have to wait and see if history repeats itself.

Despite dipping into the close, we saw solid gains across the board with “value” still outperforming “growth.”  The US Dollar was essentially unchanged, 10-year bond yields slipped to 1.66%, and the Gold ETF GLD managed to eke out a modest gain of 0.42%.

On deck tomorrow will be April retails sales which, according to some analysts, will be another big miss vs. expectations. Why not? Nothing else has met expectations this week, but the question is “how will markets react?”

On a personal note, I am out tomorrow and will not be back in time to write the Friday report. My regular posting will resume on Monday.  

[Chart courtesy of MarketWatch.com]

1. Moving the markets

US core consumer price inflation reared its ugly head as a 0.2% expected rise in the CPI index turned out to be wishful thinking with the real number showing a surge of 0.8% MoM, which represents an explosion of 4.2% YoY. As ZeroHedge pointed out, this is the biggest YoY jump since September of 2008 and the biggest MoM jump since June 2008:

Core CPI was expected to rise by the most this millennia, but it was hotter than that. The index for all items less food and energy rose 3.0% over the past 12 months; this was its largest 12-month increase since January 1996… and the MoM jump of 0.92% is the biggest since 1981.  

As a reminder though, there is nothing to see here, Fed is focused on jobs, not inflation which is “transitory”… forget about your crumbling cost of living… as real wages crash…

Consequently, the equity markets got thrashed, with the tech sector and Small Caps taking the brunt of the beating. And, as was to be expected, bond yields spiked with the 10-year slashing through the 1.65% level and touching its recent high from April 29.  

The US Dollar pumped and dumped and then surged higher. The combination of higher yields and a rebounding Dollar took the starch out of Gold’s early upswing, and the precious metal succumbed to the bears as well.

Just like yesterday, there was no place to hide, and it remains to be seen if the dip buyers, who were conspicuously absent today, will make their presence known tomorrow.