Stocks Drop On February 28 But The Real Risk Doesn't Come Until Wednesday

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Liquidity Tightening and Volatility Patterns Suggest Risk Ahead

The Dollar Is Signaling That US Rates May Be Too Low - Advanced Topics

Pain Trade Could Be Higher Yields, Stronger Dollar, Lower Equities

Rate Cuts Are A Narrative Not A Catalyst

Market Volatility Builds Ahead of Fed Decision as Dollar Weakens

2/28/2022

STOCKS – C, SQ

MACRO – SPY, QQQ, RINF, TIP

Mike’s Reading The Markets (RTM) Premium Content – $45/MONTH OR $400/YEAR – The First 2-weeks are FREE to try.

Stocks finished the day lower, with the S&P 500 falling around 24 bps, certainly not the disaster that many analysts envisioned given the sanction the US and Europe put on Russia. Maybe something will break at some point, but at this point, nada.

Again, the biggest threat to the market will not come until Wednesday when Jay Powell talks in front of Congress. Either wisely or foolishly, the Fed Fund Futures are now pricing in fewer rate hikes by December 2022, dropping by 20 basis points to 1.37%. That is a pretty significant move, and I suspect it will turn out to be wrong. His written text should come out Tuesday afternoon after the close of trading.

Inflation Expectations (RINF)

Inflation expectations certainly are not falling and have been steadily rising as measured by the ProShares Inflation Expectations ETF RINF.

TIPS Bond ETF (TIP)

Real rates are also surging again today, with the TIP ETF increasing nearly 1.8%.

I think the market is getting ahead of itself in thinking that the Fed will be less aggressive, raising rates this year, and is making a huge mistake. I expect Jay Powell to be grilled on inflation and have a hawkish tone in his testimony, and I do not think the market has adequately priced in that risk. Based on the rising inflation expectation, it is likely to put even more pressure on tightening monetary policy. I’m not even sure he has been confirmed yet. There is a footnote on his profile page that he was named Chair Pro Tempore on February 4 until confirmed by the Senate. (Get the first 2-week’s free to try: RTM: The Market Is Making A Huge Mistake)

S&P 500 (SPY)

I had thought a diamond pattern was forming on the S&P 500 earlier today, but that failed to produce the drop I was looking for. A broadening wedge is forming; whether that turns into a diamond pattern is yet to be seen. If I am correct and the market is offside, come Wednesday, we will likely see a sharp move lower in the S&P 500 as yields reprice higher, pushing the SPX back to the 4,100 level.

NASDAQ (QQQ)

The rising inflation expectations and falling real rates helped boost the Nasdaq again, with the Qs rising on the day by 30 bps. The wedge in the QQQ has a different look, which appears to be more of a rising wedge.

10:40

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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.

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Liquidity Tightening And Volatility Patterns Suggest Risk Ahead

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Square (SQ)

Square rose to resistance today at $133, and it stopped. I think the stock reverses lower now and fills the gap at $85.

Citigroup was hit hard today on falling rates and worries over their Russian exposure. It is sitting right on support at $58.65, and if that breaks there is a long way to go to $53.40.

-Mike

Mott Capital Management, LLC is a registered investment adviser in the State of New York. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Please remember that past performance may not be indicative of future results.

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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.