As we’ve been pounding for months, stocks, in the aggregate, simply can’t do rising interest rates.
And, well, contrary to popular opinion of late, they simply can’t stay loftily afloat forever either.
Now, am I suggesting that the turbulence of a few days spells the end of one of history’s epic bull runs? Of course not, however, ironically — having mentioned turbulence — I did find myself staring more than usual at this graph last week:
SP500 daily rate of change 1928 to present (bottom panel):
Suffice to say that (as we drill down) the “seismic” activity of late has our attention.
Last week I picked on Apple as being representative of the interest rate sensitivity in equities these days; here’s that chart updated:
Speaking of Apple, regular video watchers will recognize in the next chart the bearish rising wedge (top panel) and negative divergences (bottom two panels) that were just dying to play out:
As I type Fed Chair Powell is before Congress doing his darnedest to talk up the markets. So far so good. When he started the Nasdaq was off well over 2%, it’s now down less than half of that… The S&P has cut 3/4ths of its morning loss so far.
While the latest action looks very toppy, and the likes of Apple have blown through their upward trend lines, with momentum, keep in mind, there’s oodles of stimulus news to come.
So we won’t start calling the next bear market right here… But we will absolutely point to the risk!
Asian equities were mixed overnight, with 8 of the 16 markets we track closing lower.
Europe’s suffering so far this morning, with all but two of the 19 bourses we follow notably in the red.
U.S. major averages are lower as well, but not by nearly as much as they were at the open: Dow down 96 points (0.30%), SP500 down 0.45%, SP500 Equal Weight down 0.34%, Nasdaq down 1.25%, Russell 2000 down 1.89%.
The VIX (SP500 implied volatility) is up 2.09%. VXN (Nasdaq 100 i.v.) is up 0.74%.
Oil futures are down 0.78%, gold’s down 0.07%, silver’s down 2.40%, copper futures are up 0.27% and the ag complex is up 0.52%.
The 10-year treasury is, thanks to J. Powell, up (yield down), and the dollar is up 0.10%.
Led by banks, ag commodities, utilities, Asia-Pac equities and consumer staples, but dragged by silver, miners, energy services, tech and base metals, our core mix is off 0.13% to start the day.
The following Mandelbrot quote speaks to the character of present market conditions. Think about my first chart above as you read the last two lines:
“…pragmatism is needed in financial theory. It is the Hippocratic Oath to “do no harm.” In finance, I believe the conventional models and their more recent “fixes” violate that oath. They are not merely wrong; they are dangerously wrong.
They are like a shipbuilder who assumes that gales are rare and hurricanes myth; so he builds his vessel for speed, capacity, and comfort—giving little thought to stability and strength. To launch such a ship across the ocean in typhoon season is to do serious harm. Like the weather, markets are turbulent. We must learn to recognize that, and better cope.”
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