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MARCH 12, 2021
STOCKS – None
MACRO – QQQ, SPY, TLT
Mike’s Reading The Markets (RTM) Premium Content – FREE 2-WEEK TRIAL
- LIVE STREAM REPLAY
- MORNING NOTE: YIELDS AND DOLLAR BREAKING OUT
- Live Session – 3.12.21 — 1 PM ET
- Midday Note: Is This It For The Rally?
- Morning Note: The ECB Strikes First, And That Means A Stronger Dollar
- Midday: Growth Stocks May Still Have Further To Fall
- Morning Note: This Is Like The Upper End Of The Range For The S&P 500
- Video: Today’s Rally Not Likely To Last
Stocks were mixed today, with S&P 500 finishing flat and the Nasdaq finishing lower by 80 bps. It is ironic because the money leaves many of the overvalued technology names and is heading right into the overvalued industrial names and co.
The last time that industrials names, for example, were valued as such was in the year 2000. They are even more grossly overvalued today than in January 2018. The industrials did nothing after the January 2018 peak for nearly 2-years. The market right now is momentum-driven, with the money just chasing the stocks on the move. There are no value stocks because everything is overvalued. This is like buying GE at $60 in 1999.
10-year rates rose again, over 1.6%, and overnight Repo rates fell to negative 2% today, which means there are still plenty of traders looking to short the 10-year. The rising rates did weigh on the NASDAQ, but the S&P 500 managed not to be overly affected, and I’m sure there are plenty of people wondering why.
I believe the S&P 500 has not been hit like the NASDAQ because the S&P 500 has enough material, energy, industrial, and financials to offset the technology sector. Those sectors are rising not because they have “value” but because they are sensitive to the economic cycle and commodity prices. For this reason, I believe the S&P 500 is merely following the 10-year breakeven inflation rates, and to this point, those rates have continued to rise.
These inflation expectations haven’t fallen because 10-year TIP rates have not risen as quickly as 10-year Notes. Because of that, we have not seen the S&P 500 breakdown in the same way as we have seen in the NASDAQ. It leads me to believe that S&P 500 is likely more closely tied to changes in the TIPS rate than the 10-year Note.
Since July 31, the 10-year note has risen by more than 100 bps, while the 10-year TIP has risen by roughly 40 bps. That 60 bps difference is what has allowed the breakeven rate to climb to 2.28%, giving the economically sensitive sector the green light. However, if that inflation rate begins to fall, the S&P 500 is likely to follow.
With the Fed meeting this week, we could see this change. It will largely depend on what the Fed’s inflation outlook is; on the dot plots which may have a big impact on that; we will have to wait and see.
Have a nice weekend
-Mike
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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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