Search
All
Economics
Politics

Don’t Miss a Post. Subscribe now.

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

•

•

48 comments on Stocks Decline as Powell Warns of Higher Inflation and Accelerated QE Tapering

•

Stock Selloff Resumes

Wall Street’s main indexes extended declines in choppy trading on Tuesday after Federal Reserve Chair Jerome Powell said the risk of higher inflation has increased and that it was appropriate to consider wrapping up tapering a few months sooner.

Snip Reuters, Image WSJ.

11.06 AM Central Indexes

  • DOW: -667, -1.89%
  • S&P 500: -88, -1.88%
  • Nasdaq: -320. -2.03%

Bond Market Reaction

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. 

Huge Yield Curve Flattening

I will post new charts later tonight after the bond market closes. But huge flattening is underway now.

  • The yield on the 30-year long bond is down 8 basis points, the 10-year note yield is down 10 basis points. 
  • Meanwhile, the yield on the 5 year note yield was positive but just fell by 2 basis points as I am typing.
  • The yield on the three year note is up 2 basis points and the 2-year note is up 3 basis points.

Other Measures

The VIX S&P volatility index is up 4.86 points to 21.47.

Gold is down a modest $7.50 as I type. One might have expected a bigger selloff on this news.

Of all the reactions, the bond market was the most interesting because it was arguably the least expected. 

Recession Watch 

This continual flattening is a recession warning.

I still do not believe the Fed gets in all the expected hikes and the bond market reaction supports that belief.

Thanks for Tuning In!

Like these reports? If so, please Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.

If you have subscribed and do not get email alerts, please check your spam folder.

Mish

Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.

This post originated on MishTalk.Com

Thanks for Tuning In!

Mish

Mike Shedlock

Recommended Articles

Comments to this post are now closed.

48 Comments
Newest
Oldest Most Voted
FromBrussels
FromBrussels
4 years ago
DON T WORRY  with an awful lot of obliging vaxxed sheeple dying off pretty soon the world gonna be  a better place !!
0
0
Christoball
Christoball
4 years ago
For every seller there is a buyer. Investors are fleeing to cash. Consumer speculators are buying the dips.
0
0
KidHorn
KidHorn
4 years ago
People who listen to the FED are idiots. The FED has to keep interest rates low and has to continue buying MBS and T-Bills. The alternative is a housing market crash and a federal government default on their debt. There’s no way the federal government can raise enough tax revenue to cover 5%+ interest on their maturing debt. Our government is broke and can only pay interest with money raised with more debt sales. They would quickly run out of money and they couldn’t sell enough T-Bills to the general public at an interest rate they could make interest payments on. If the FED actually tapers, they’ll have to quickly reverse course. It’s a mathematical certainty.
0
0
Tony Bennett
Tony Bennett
4 years ago
Reply to  KidHorn
It’s called between a rock and a hard place.  
You fail to mention surging inflation.  You OK with that?
How about the bottom 50% who own next to no assets as offset?
Hard Recession the ONLY option.   Now or Later.
0
0
KidHorn
KidHorn
4 years ago
Reply to  Tony Bennett
It doesn’t matter. If the FED doesn’t print money and buy gov’t debt, the federal government defaults. There may be a lag between when the fed stops printing and the default, but it will be inevitable. There’s no way the gov’t can raise enough tax revenue to dig themselves out of their financial hole.
0
0
TCW
TCW
4 years ago
Reply to  KidHorn
They can quit spending on programs to pay the higher interest.  I’m sure some fat could be trimmed though some politicians wouldn’t like it.
0
0
Tony Bennett
Tony Bennett
4 years ago
Reply to  KidHorn
Why is the market down today?  Because Jay Powell mentioned accelerating taper.
Oh my Gosh, Bonds must have CRASHED!  They sure did.  UPWARDS.
Validating my point.
0
0
Scooot
Scooot
4 years ago
Reply to  Tony Bennett

Recession 1 Inflation 0 

0
0
1-shot
1-shot
4 years ago
The FED almost always FOLLOWS markets. They seldom lead them.
Bond markets are simply saying we’re LONG overdue for a solid recession (Not the 2 week version). The “why” doesn’t matter and for anyone who follows technical analysis such as Elliott Wave, etc. we’re ripe for a correction of a magnitude that could result in a true recession and lower interest rates. The FED wouldn’t have to do anything other than get out of the way.
IMO Zombie companies, zombie SPACs, zombie junk bonds, zombie cryptos all need to be cleaned out and WILL be cleaned out before markets can move substantially higher in a healthy way. Think, Zillow, Redfin, Uber, Trump Media, Dogecoin, Rivian, TESLA etc.  They all have crazy valuations based on non-existant earnings, inoperable business models or worse yet, giant losses.
All that’s missing is the secret catalyst. 
0
0
Eddie_T
Eddie_T
4 years ago
Reply to  1-shot
Please, not dogecoin!
#sarc
0
0
Maximus_Minimus
Maximus_Minimus
4 years ago
Reply to  1-shot
I have a hidden tip: WeWork.
0
0
Dean
Dean
4 years ago
question: It the FED’s taper moot because it can still buy bonds / provide liquidity using its “standing repo facilities”? 
0
0
Scooot
Scooot
4 years ago
Reply to  Dean
Why though, they don’t have to taper if they don’t want to? 
0
0
Dean
Dean
4 years ago
Reply to  Scooot
I am going the “financial repression” model of reducing toxic 130% debt/GDP. Fed’s projects they are fighting inflation to save Democrats flagging poll numbers, but really wants negative real rates and high inflation.
0
0
Scooot
Scooot
4 years ago
Reply to  Dean
Tapering doesn’t fight inflation, it’s just less stimulus, or less bond yield manipulation I should say.
0
0
Eddie_T
Eddie_T
4 years ago
I’d prefer to hear this from a better source, but this article says ZERO hospitalizations or deaths from Omicron. In Africa most patients with Omicron are younger, which does matter, I suppose….but it looks like this whole lockdown threat is pretty bogus.
0
0
goldguy
Eddie_T
Eddie_T
4 years ago
Reply to  goldguy
Nothing too surprising there. Not relevant to Omicron either, necessarily.
0
0
KidHorn
KidHorn
4 years ago
Reply to  Eddie_T
Africa as a whole has done a lot better than the rest of the world. My guess is they’re generally healthier because they have to physically work hard every day to stay alive. Their average live spans aren’t as long, but it’s because of high infant mortality and things like tsetse flys. Things that won’t make you susceptible to covid.
0
0
Eddie_T
Eddie_T
4 years ago
Reply to  KidHorn
A more relevant metric might be  the median age, which is 27 in South Africa (just for example). They don’t have a lot of really old people…..like some places…..like the US and Italy. Check out the demographic pyramid for SA.
0
0
Carl_R
Carl_R
4 years ago
We’ve now seen two possible ends to the pandemic. The first was the A394V variation, which eliminates the virus’ ability to error check the replication process, which in turn leads to the virus mutating itself to death. Most mutations will be non-viable, while those that are viable will mutate as well, mostly into non-viable forms, which repeats until it is gone. This was how SARS ended, back in 2004.
The other possible end is that SARS-COV2 mutates into a mild version, which causes little more than a cold. The current information on Omicron is that it spreads rapidly, but that it may produce milder symptoms. That was how OC43, which is believed to have caused the Russian Flu, ending back in 1890. OC43 is still with us, but merely causes a cold.
So, will it become endemic in lethal variations? Will it become mild, and cause only a cold? Or, will it mutate itself into vanishing completely? We’ll have to wait and see. 2022 will be another interesting year, but I think that the least likely outcome is that it remains forever in it’s current state.
0
0
Eddie_T
Eddie_T
4 years ago
Reply to  Carl_R
This is the correct line of questioning, imho.
So far I don’t see a single report of a death from Omicron….or any sign even of serious morbidity, other than possibly in Soweto, where I it was reported anecdotally that “some” patients found to have contacted it were seriously ill.
In Johannesburg nobody has gotten sick enough to require mechanical ventilation, AFAIK.
In the Netherlands they figured out its been there for ten days, and nodody knew it.
Sounds mild enough. time will tell.
One thing I think is fairly certain. Markets have overacted to the news. Of course, once technical damage is done to the markets, it takes some time to repair itself.
0
0
Christoball
Christoball
4 years ago
Reply to  Eddie_T
Technical damage has already been done by high valuations. It is not “different this time”.
0
0
Scooot
Scooot
4 years ago
Reply to  Carl_R
I think the authorities are fully aware of the risk posed by leaky vaccines and are petrified of a very nasty one. Hence the precautions.  As a far greater percentage of the population are now vaccinated, and can spread mutations without showing symptoms, that risk increases. I suspect we’re going to keep going through the Greek letters, whether a really nasty one emerges who knows. 
0
0
Carl_R
Carl_R
4 years ago
Reply to  Scooot
So far all the mutations have come from countries with low vaccination rates, with the exception of A394V, which came form Japan, and which was a positive mutation. Who knows what the future will bring, though. We’ll have to just wait and see.
0
0
CristiC
CristiC
4 years ago
Reply to  Carl_R
I disagree with your absolute statement “all the mutations”. Can you point to a study that links low vaccination rates to more mutations? I found AV.1 to be first documented in UK in Mar 2021. We should also realize that countries with higher vaccination rates account for 10% of world population (China excluded since they no longer had Covid cases, with or without vaccination). So, it is natural that much more mutations are expected to occur in the 90% of the world.
0
0
TexasTim65
TexasTim65
4 years ago
Speaking of bonds. If your looking to buy bonds at the end of the year that pay good money then check out Government Series I savings bonds. Currently paying 7.12% which in theory is better than inflation.
Must be a US tax payer (in truth you just need a social security number) and your limited to $10K purchase per year but if your married (or have young kids) that can be $20K a year or more you can lock in 7.12% rate for 5 years. Not many *risk free* bonds paying that much anywhere else.
0
0
Scooot
Scooot
4 years ago
Reply to  TexasTim65
They’re a bargain. 
0
0
getMOTIVated
getMOTIVated
4 years ago
Reply to  TexasTim65
I’m going to be “that guy”. 
Interest rates on I bonds reset every 6 months.
Rates aren’t locked for 5 years. 
The rate until the next rate reset certainly is better than traditional fixed income.
0
0
TexasTim65
TexasTim65
4 years ago
Reply to  getMOTIVated
Correct about the rates changing every 6 months.  This explains how they set them at a fixed rate + inflation rate.
I merely posted this because many are looking to buy some safe government bonds that pay a decent rate (something better than 1% or less).
0
0
killben
killben
4 years ago
“I still do not believe the Fed gets in all the expected hikes and the bond market reaction supports that belief.”
Rate hikes may not be required too as a recession would cure inflation. It might come down to how omicron behaves. 
 
0
0
Scooot
Scooot
4 years ago
Reply to  killben
It’s a long time since there’s been inflation during a recession, once it’s out of hand it’s very difficult to bring under control. There’s a real risk it’ll get out of hand because they’re behind the curve and likely to remain so. Although they’re going to come under immense political pressure to do something about it. 
0
0
Tony Bennett
Tony Bennett
4 years ago
7 yr and 10 yr notes only 8 bps apart.  
Inversion soon??
0
0
AWC
AWC
4 years ago
Pure jawboning manipulation. What better way to tone down animal spirits than threatening to turn down the dial a notch on “Wealth Effect?” 
0
0
Eddie_T
Eddie_T
4 years ago
He’s already trying to walk it back.
0
0
Tony Bennett
Tony Bennett
4 years ago
“Federal Reserve Chair Jerome Powell said the risk of higher inflation has increased and that it was appropriate to consider wrapping up tapering a few months sooner.”
…
Luckily, I’m not cynical … surely, pure coincidence he waited to say this after nabbing nomination last week for second term as Chairman…
0
0
KidHorn
KidHorn
4 years ago
The FED says a lot of things but their actions never change. They’ll keep interest rates low and will continue to buy MBS and T-bills. The alternative would be far worse than 5-10% inflation.
0
0
Tony Bennett
Tony Bennett
4 years ago
Reply to  KidHorn
“The alternative would be far worse than 5-10% inflation.”
…
Really?  Maybe for asset holders.  Country NEEDS a hard recession to clear out mal investment.  Once the forest has been burned … Clear sailing … for YEARS.
0
0
KidHorn
KidHorn
4 years ago
Reply to  Tony Bennett
Pretty much anything would be better then a government default.
0
0
Tony Bennett
Tony Bennett
4 years ago
Reply to  KidHorn
A country will NEVER default on its debt when priced in own currency.  Could lead to a currency crisis, however.
Having said that, Federal Reserve could shrink balance sheet / raise interest rates (at least a bit) to stem inflation.  What WOULD happen is a fall in equity market.  Wilshire 5000 around $47 trillion.  Liquidity leaving that would seek safe haven … in bond market.  Doing the work of the Federal Reserve.
Everyone STILL concerned with Return ON Capital.  When the worm turns they will instead be concerned with Return OF Capital.  Treasuries EXPLICITLY backed by Full Faith of US Government.  Tesla / Dogecoin / Amazon / etc backed by ?????????
0
0
KidHorn
KidHorn
4 years ago
Reply to  Tony Bennett
Uh, they would default if the FED didn’t buy gov’t debt. Otherwise how would the gov’t pay it’s bills plus interest on the debt? So back to what I said, if the FED stopped buying T-Bills (among other things) and raised interest rates, the government would default.
0
0
Scooot
Scooot
4 years ago
Reply to  KidHorn
“Otherwise how would the gov’t pay it’s bills plus interest on the debt?”
They print dollars and use those.
0
0
KidHorn
KidHorn
4 years ago
Reply to  Scooot
The FED prints dollars. Not the gov’t.
0
0
Tony Bennett
Tony Bennett
4 years ago
Reply to  KidHorn
Please.
POTUS appoints Chairman / Governors.  
Do you SERIOUSLY buy into the bunk you’re writing?
0
0
KidHorn
KidHorn
4 years ago
Reply to  Tony Bennett
What bunk? The federal government is going to default if the debt ceiling isn’t raised in the next month or so. It’s not something impossible like you think it is.
0
0
Maximus_Minimus
Maximus_Minimus
4 years ago
Reply to  Tony Bennett
If you think treasuries as collateral on trillions of contracts. The whole financial system is based on trust in government bonds.
0
0
Christoball
Christoball
4 years ago
Reply to  Tony Bennett
Tesla market cap is equal to the 10 largest automobile manufacturers  combined. Unsustainable.
0
0
Christoball
Christoball
4 years ago
Reply to  Tony Bennett
So true. Too many zombies ( propped up mal investment ) running around.
0
0

Decorate Your Walls with Mish Fine Art Images

Click each image to view details or purchase in the store.

Stay Informed

Subscribe to MishTalk

You will receive all messages from this feed and they will be delivered by email.