10 Monster Stock Market Predictions For The Week Of March 1

It will be a hectic week, what with the ISM manufacturing and service reports, as well as job data. This will be bond market-moving news, specifically when measuring the economic expansion and searching for signs of inflation.

It makes the prices paid index on the manufacturing report and hourly wages on the BLS job report perhaps two of the most important measures. Both are key measures of inflation and are likely to result in a big response from the bond and currency markets.

The more dovish sounding Powell gets, the more bearish it is for stocks. The bond market hasn’t had an epic tantrum in years, and the bond market is far bigger and far more important to the health of the economy than equities. The bond market may be about to test Powell in a way that will make the fall of 2018 look like child’s play.

It is clear from reading the Fed minutes and Powell’s congressional testimony that the bond market wants Powell to back-off this dovish stance and stop placating the equity market. Powell danced around the Q&A sessions, avoiding saying anything that he felt would upset the equity market. But instead, he upset the bond market.  

Please make no mistake; bonds will continue to push this until they either break Powell, getting him to push more QE into the system, or institute yield curve control to stop yields from rising. Or Powell provides clarity about plans to stay in front of inflation. That means between March 16 and 17, one should be prepared for a lot of volatility, and the bond market volatility index shows, it may only be starting.

As I have said since December, rising rates were likely to be the force that upset the apple cart for equities, and indeed they have. They have gone up even faster than I anticipated. I was looking for 1.5% in the first half of the year, but we are only at the end of February.

If rates retreat some over the next week or two may, it may not matter as the damage has been done. Equity investors will be forced, and have already been forced, to begin rethinking their discount rates and where rates are likely to remain from here.

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Disclosure: Mott Capital Management, LLC is a registered investment adviser. Information ...

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