Markets Rising From The Ashes

S&P 500 caught a partial bid yesterday, enough to stave off the break of prior Wednesday‘s lows. All isn‘t fine under the surface though as yet another Fed trial baloon emerges – this time, talking about talking taper, doing predictable wonders for the dollar. As I have stated, it‘s when the Fed would really move that the greenback would go up again. The important word here is „really“ – this doesn‘t qualify yet, but the noises can‘t be ignored.

That‘s taking me to the partial bid mention as it shows in the S&P 500 sectoral action – tech rises and value continues trembling. The Russell 2000 keeps lagging while emerging markets seem to still doubt the Fed‘s seriousness. But the VIX daily move is positive as the daily spike has been clearly rejected – another, this time a smaller and pickier algo repositioning at work. At the same time, option players got positioned for another shoe to drop, tying in well with their moves overall since late Feb.

Inflationary fears aren‘t by any means quelled just yet – Treasuries disregarded yesterday‘s retreat in inflation expectations. The Fed approach needs a refresher:

(…) when the central bank‘s manual consists mostly of transitory inflation talking points and tolerance to upside overshoots. The market is thinking otherwise, and the speed with which stocks seem to be discounting the P&L impact of cost-push inflation, sends a warning as clear as the dissipating PPI effects. Just wait for when the job market pressures add in. In my view, the market is worrying that the Fed is losing / has lost the inflation battle.

At the same time, the Fed is prepping / making noises it‘s prepping for the inflation specter. As said, inflation is the tool to eventually sink stocks, and the fear is hitting value and tech alike. Yet similarly to Nasdaq upswing yesterday, corporate credit markets are sending a glimmer of hope that the return to risk-on is approaching, and could lift the challenged value stocks, which typically don‘t take well to retreating yields lately. At the same time, we‘re still in the phase of their outperformance of tech, which is in line with the reflation and reopening themes. The discrepancies in sectoral performance of late are the explanation behind the S&P 500 pendulum swinging bullish delayed again.

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