What a weird day. The yield curve was utterly crushed as yields on the long-end collapsed, and bonds on the short-end rose. It started last night with the 2-yr popping higher around 8:30 PM ET and ended today by 6 bps to 51 bps.

The UK 10-Year Gilt fell 11 bps after the government said it would issue fewer gilts in the coming year. That sent traders scrambling to buy the bond, sending the 10-year below 1%, closing at 0.97%. Couple this with the ECB meeting tomorrow, and global rates fell sharply, including the US.

The US 10-Yr fell by 7 bps to finish at 1.54%. Meanwhile, the curve flattened by a stunning 13 bps, versus the 2-year. I have been noting that I expect the curve to continue to flatten, and if the ECB is a dovish as I expect them to be tomorrow, then yields on the long-end of the curve should continue to fall over time as the short-dated bonds rise. Due to the pressure of falling global rates.

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This flattening crushed the financials and small-caps, with the XLF dropping by 1.65% and the Russell falling by 1.9%. The more the curve flattens, the more the two sectors will fall, along with the industrials, the materials, and energy.

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S&P 500 (SPX)

Meanwhile, the S&P 500 finished the day down just 50 bps, and it would have been worse if not for Microsoft, Alphabet, and Tesla holding the index up. The equal weight RSP fell 1.3% on the day, with decliners beating advancers nearly 3 to 1. Please do not underestimate the change in the yield curve and what it means. The movement is the market’s expectation that either the Fed is making a policy mistake forcing them to tighten much more quickly and killing growth, or 2) the global recovery is faltering.

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It is beginning to look like we have seen the top of this wave B higher. Which I think is in its initial phase will take the S&P 500 back to 4,485.

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Nasdaq (QQQ)

Meanwhile, the Qs tried for a second day to break out and failed. Not a good sign, in my opinion. If we break below the top of the broadening wedge tomorrow, it will probably be the start of a drop to $370.

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Twilio (TWLO)

Twilio shares are trading 11.5% lower after results and news its COO was resigning. I don’t know what to say about this stock. It is one of those overvalued names that can’t grow fast enough to fit into the market’s valuation. A drop below $306 sets up a further decline to $275. There is that gap at $120 that should not be forgotten.

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Teladoc (TDOC)

Teladoc is trading down over 5% after reporting quarterly results. The situation is not much different from Twilio. An overvalued stock that can’t grow fast enough. I still think this stock can fall to $114 or so. It is taking a bit longer than I thought.

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AMD (AMD)

As expected, AMD’s results weren’t good enough, with the shares finishing lower. I still think support comes around $115 to $117.

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Amazon (AMZN)

Google’s cloud business missed estimates yesterday, and Azure continues to grow at its constant 50%. Now Azure doesn’t match up to AWS perfectly because AWS has a lot of other business lines (including web hosting). Given that IBM’s cloud segment disappointed, and Google’s cloud disappointed, and AWS is not a pure match to Azure, it’s entirely possible this unit saw a sharp deceleration in revenue tomorrow. It could even be possible that Microsoft’s Intelligent Clouds unit is beating AWS out in some of its business lines. I guess we won’t know till tomorrow.

There is a descending triangle on the chart, and despite two breakout attempts ahead of earnings, it has failed. Layer on flattening retail sales numbers and an economic slowdown, I would not be surprised if Amazon disappointed on revenue and/or issues weak fourth-quarter guidance, with the stock heading to $3,000.

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But then maybe I’m biased; I have owned Microsoft since January 2019.