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Largest Intraday Market Swing in a Year, What's Going On?

Both the stock market and bond market had huge intraday swings. Let's investigate the likely cause as well as excuses.
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Huge S&P 500 Intraday Swing 2021-12-01

The S&P 500 Swing

  • From 4652.94 to 4510.27 is a swing of 142.67 points.
  • In percentage terms, the top to bottom swing was about 3.1% 

No only did stocks reverse today but so did bonds, especially at the long end of the curve.

Intraday Bond Swing 30-Year

30-Year Intraday Bond Move 2021-12-01

30-Year Bond Swing Synopsis

  • The high today was 1.836%, up 5.6 basis points from yesterday.
  • The low today was 1.741%, down 3.9 basis points. 
  • The yield is just off the low now at 1.745%. 

Warning From Powell

Yesterday I commented Stocks Decline as Powell Warns of Higher Inflation and Accelerated QE Tapering

The stock market reaction is what I would have expected on the above news.

The bond market reaction is far more interesting. Yields at the long end tumbled and rose in the middle.

Given news that the fed would taper (end QE expansion) sooner and then start hiking rates sooner, one would have expected a stock market decline (and been correct).

But if the economy was strengthening, bond yields would normally go up across the board. They didn't. 

Something Bothering Mr. Market?

Michael Lebowitz asks the key question. 

What's Going On?

  1. Something is bothering Mr. Market. Omicron?
  2. Powell's recent Hawkishness?
  3. Maybe extreme valuations are finally catching up with reality.

I strongly vote for door number three. 

Anyone with an ounce of sense understands the market is immensely overvalued but the Greater Fool's Game is enormous (thanks of course to the Fed and unwarranted stimulus).

Trigger Discussion

Fed Chases Its Own Tale (Tail Too)

No Escape

Powell and Omicron are the rationalization excuses. "Hook" is a better word that will keep many people in.

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Of course, there is no escape in aggregate. 

Individual investors can sell and go to cash, but in aggregate there is no escape from whatever will happen.

For every seller there is a buyer. Someone must hold every share 100% of the time. The same applies to Bitcoin, bonds, and gold, however high or low the market gets.

The the bigger a fund the harder it is to do anything but sit. 

Relentless Yield Curve Flattening

Treasury Yields October 1 vs November 30 2021-11-30

I am watching the Relentless Flattening of the Yield Curve

Recession Watch

This flattening is signaling recession, but the timing is very unclear.  

If the economy was strengthening, yields at the long end would be rising. 

The only inversion is between the 20-year at 1.85% vs the 30-year at 1.78%. 

I expect the 10-year will invert with the 7-year next. Currently the spread is positive by 7 basis points with the 10-year yield at 1.43% and the 7-year at 1.36%. 

A Word About Fed Models

Inflation models are worse than useless. They make central banks complacent.

For discussion of the Fed's useless economic models please see How Bad are Inflation Models, Expectations, and Forecasts vs Reality?

For a discussion of dot plots of rates hikes expected by the Fed, please see my September 22 post Fed Anticipates Rate Hikes in 2022 and 2023 - Fade This Consensus

Thanks for Tuning In!

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