The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Bumpy road.
Investors tried to buy the dip again but they couldn’t pull if off. Premarket futures implied 10 points of upside but the S&P opened flat, gained 11 points and rolled over in 5 minutes. Things got ugly by 10:30 AM, with the S&P 500 off 63 points at that time. The market recovered most of the losses by lunch and made a run at unch’d around 3:30 PM. Stocks fell back modestly late and now the bears have a 4-session winning streak. Yields fell significantly across the curve and capital flow was 131% today, the largest value in a while.
As much as the dip-buyers use the chart to guide them, the fundamental story of the market is more at work right now than anything else. Growth concerns continue to mount. Various economic data published today tilts toward the disappointing side of things. The rosy growth outlook doesn’t seem so rosy lately. Maybe the economic growth expectations we all had in December need to be revised down…. And maybe that revision will be material.
Bond markets are thinking along those lines and the stock market is coming along for the ride.
Here’s the 10-year US Treasury note yield over the last year.
Notice the significant drop since mid-January. That could be a sign of the bond market worrying about economic activity.
Now let’s look at the Fed Funds futures contract for December.
This rate has dropped significantly since Feb 12. The Fed has clearly communicated that they are in no hurry to lower rates. Recently this futures contract has gone from pricing 28 bips of Fed cuts to pricing 58. That’s an indication of economic concern. The market knows the Fed isn’t going to chop rates *unless* a weak economy forces their hand and that futures contract just added more than a cut in two weeks.
And so here we go. Treasury markets and Fed Funds markets are starting to price in the potential for an economic slowing.
Unless the market gets convinced that growth potential needs to be boosted, rather than pared, stocks are going to face pressure.
Maybe Nvidia on Wednesday can accomplish that but boy oh boy are the bulls putting a lot of pressure on that company’s guidance.
Can they actually flip the script?
We’ll see in one day. Until then, it’s bumpy out there.
-Mike
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