Displaying items by tag: inflation

(New York)

The market did something that seems quite odd yesterday. Despite inflation coming out ahead of expectations and Treasury bonds commensurately selling off, stocks rose strongly. It was the first time the two asset classes had moved in significantly opposite directions in some time. Yields on the ten-year bond extended their four-year high to 2.92%, seven basis points higher than in the previous session.

FINSUM: We have been saying for the last couple of weeks that investors would realize inflation wasn’t necessarily bad for stocks. The market seems to have woken up to that reality.

(New York)

It has been many years since we had significant and sustained volatility. Both 2011 and 2013 had significant moves, but it had been almost five years since the kind of eruption we saw over the last couple of weeks. It was an amazing 404 trading days that the market had gone without a 5% drop. Barron’s says investors need to get used to the recent discord, as the volatility is here to stay. The paper borrows its argument from equity research analysts who contend that market stability is impossible, and any semblance of it an illusion, as the very forces that try to promote stability, such as the Fed, ultimate drive volatility.

FINSUM: This is quite an esoteric argument, but the reality is that with the economy changing gears into a new paradigm, we are likely going to continue to have some bumps.

(New York)

Investors need to be on red alert today, as this is the day markets have been waiting for. US inflation data for January comes out this morning, the piece of information which will either assuage or accelerate fears about pending Fed rate hikes and a possible recession. Not only will the data affect US markets, but if inflation accelerates, it will also impact other asset classes, such as the Dollar, and by extension, emerging markets.

FINSUM: If inflation is ahead of forecasts, or looks at all strong, it will likely panic markets. If it is weak, there may be a relief rally.

(New York)

The Dow experienced mild gains yesterday, with just a 40-point move higher. After so much back and forth recently, nothing could have been more welcome for many investors. The mild move begs Barron’s to ask the question of whether stocks have finally found a floor after a roller coaster two weeks. Stocks started rough, but rallied late in the day, giving signs of renewed optimism. The most interesting part was that after opening down 180 points, bids started to appear which supported the market, leading some to believe that there is actually a market clearing price in place.

FINSUM: Whatever the market did until now is immaterial in our opinion, as it is this morning that inflation data comes out, and that will ultimately be what moves markets in one direction or another.

(New York)

Well it finally happened yesterday. The big selloff in bonds finally managed to legitimately spook the equity market. Stocks in the US were down big as the yield on ten-years jumped mightily. The ten-year yield is now 2.73%, the highest in three years, which was a significant mental threshold. Investors are worried that with the world economy doing so well, inflation may again rear its head, causing central banks to raise rates quickly. The S&P 500 fell 0.7% on Monday.

FINSUM: Okay here is the big question we have—why would the world economy doing well and higher rates be negative for stocks? If anything, equities are a good inflation hedge.