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STOCKS – C, SQ
MACRO – SPY, QQQ, RINF, TIP
- RTM: The Market Is Making A Huge Mistake
- RTM Tactical Update: Don’t Fight The Fed
- RTM: Short Covering Continues For Now
- RTM: Tech Jumps As Real Yields Crater
- Thursday Morning Madness
- RTM: Critical Levels Of Support Approach
- RTM Exclusive: Intel – From Bad To Worse
- RTM: Stocks Sink As Conditions Tighten
- RTM Video: S&P 500 Heading May Be Heading, Sub 4k
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.
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.
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.
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.