Stocks finished the day lower, although managed to stage a mild rebound to finish out the day. The S&P 500 did fall by around 1.4% earlier in the day but then rebounded to close down around 45 bps. The decline started before the CPI report, tumbling along with the European market following the surprisingly hawkish announcement of a slower bond-buying program.

The S&P 500 gapped lower, erasing half of yesterday’s losses, but managed to claw its way back as traders sold put options. This was seen specifically in the SPY ETF, which finished the day with positive delta hedging.

It appears the SPY is consolidating sideways, and I don’t have a clear handle on how the consolidation breaks at this point. A close above $430 would be a breakout, giving the ETF a chance to rise to around the gap at $435. But a breakdown would likely lead to the lows of February 24 being taken out.

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2-Yr

The 2-Year rate is now trading over 1.7% and seems to be on a path higher to 1.85% in the near term. The ECB’s surprisingly hawkish announcement should help push rates higher here in the US as European rates get pulled higher.

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Financial Conditions

After falling the last two days, the IEF/LQD ratio increased today. A sign that financial conditions are back to tightening.

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