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The market’s mood has turned much more cautious, if not fearful. On Friday, we received a payrolls report that should have been taken in stride, if not positively. Quite frankly, that is what we wrote about in the immediate aftermath of the report. As the afternoon wore on, it instead became apparent that traders did not want to go home long before the long holiday weekend in North America. A 1% gain evaporated and became a 1% loss when stories began to circulate about continuing difficulties for European energy.

Those worries came into sharper focus this morning when newly installed Prime Minister Liz Truss announced a support package for UK energy suppliers that would reimburse them for losses made by capping energy prices. While this may prove to be a boon to struggling UK consumers, it is yet another reminder about the difficulties faced by energy consumers throughout the globe. It would not surprise me in the least, for example, if we learned that Japan was selling Treasuries to help finance its energy imports. Even as bond prices fall in nominal terms, they are rising more quickly against a rapidly depreciating yen. 

Regardless of who might be selling Treasuries – another theory is that there is a big wave of corporate bond issuance that dealers hedge by selling treasuries – yields are rising sharply again today. As I write this, 2-Year yields are up 10 basis points and 10-Years are up 13bp. That long bonds are rising faster adds credence to the hedging idea, but it also means that the 2-10 inversion has shrunk to 17bp. That could indicate decreasing fears of an impending recession, which could in turn bolster the Federal Reserve’s resolve to tighten monetary policy. Is your head spinning yet?

Relatively speaking, those of us in North America have it pretty good. We’re not at the immediate mercy of a hostile adversary withholding vital gas. That is leading to continuing strength in the US dollar. A stronger dollar helps us in the fight against inflation but can be a significant headwind for the multinational companies that dominate major US equity indices.

Regardless, today’s early attempt at a buy-the-dip rally off of Friday’s lows failed. Since then, we have at least recouped the early losses. Who knows where we’ll be by the time you read this. Hey, maybe we will have flushed out the early sellers and gloomy Europeans to push higher. But I think about a lesson that I learned early in my career –in a bear market, it feels like a win if you rally to close “only” unchanged or slightly lower. And yes, as I stated recently on TV, I think that we’re still in a bear market until proven otherwise.

Last week I laid out a useful pair of mantras that can guide investors during rocky periods: “Don’t Fight the Fed” and “Sell the Rips”.Today’s open was indeed an opportune time to sell a rip. Markets are often rocky during the September/October period, and with an FOMC meeting later this month, this may prove to be no exception. 

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