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1/24/2022
STOCKS – MSFT
MACRO – SPY, QQQ, RATES
- RTM: Fed DUMPS Stocks For Real Economy – Audio
- RTM: PRE FOMC Thoughts
- RTM: Consolidating Ahead Of FOMC
- RTM- Market Is Repricing Risk
- RTM Long-Term Update- Adding Altria
- Tactical Update: The Fed Put Is Dead
- RTM: Thoughts On The Sell-Off
- ICYMI: LIVE Q&A SESSION –REPLAY
- RTM: Real Yield Spike Causes Market Reversal
- RTM Exclusive: PayPal’s Next Leg Lower Is Near
Michael Kramer and the clients of Mott Capital Own MSFT
It was another wild session, but stocks started higher and finished lower this time. The S&P 500 was trading higher more than 2% to finish down on the day by 15 bps. Today was the big FOMC announcement, and the bulls didn’t get their less hawkish surprise; they got the Powell which we saw two weeks, talking about balance sheet runoffs and an economy that can handle multiple rate hikes.
When asked about the market volatility, he shrugged it off and said he was focused on the real economy and achieving their mandates and not using only one market to assess financial conditions. You can watch it right around the 27:30 mark. Given its size and duration, he also talked about the balance sheet running off sooner and faster than the 2017/18 scenario. Additionally, he noted that the Fed is likely to raise rates soon, which is the code word for at the next meeting. At least that is what it was in the previous iteration. So basically, the market didn’t get a less hawkish Fed; it potentially got an even more hawkish Fed. Today, there were many more details than in the confirmation hearings two weeks.
That, of course, sent the 2-year yield higher by 13 bps to 1.15% and the 10-year up to 1.87%. It helped to flatten the curve to around 72 basis points. Additionally, the Fed Funds futures for December are now trading at 1.17%, indicating that the 2-year yield needs to rise much higher, as I have been saying probably to 1.4%.
5-Yr TIP
But most importantly of all, the 5-yr TIP “real” yield rose to -1.04%, from around -1.20 pre FOMC, a massive Intraday move. Once the real yield started to move, it was over the stock market.
The 5-year TIP is now trading above its January 20 high of -1.06%, and I don’t see how the NASDAQ can push to new highs or even within 5% of those highs, with real yields rising and earnings estimates are falling. Worse is that the 5-year TIP is likely heading to -0.50 bps, so it has much further to climb still. The chart below shows an inverted (upside-down) Nasdaq.
‘NASDAQ (QQQ)
The Qs melted all afternoon, dropping to and holding support around $342. Once that breaks, I think we should quickly take out the lows and start heading towards $330.
S&P 500 (SPY)
What is bad for the S&P 500 is that we spent nearly all day trying to clear the 200-day moving average and failed miserably, not a good sign.
Due to the move up this morning, I changed my pennant pattern into a bear flag. If I were to project that bear flag out, it could lead to a drop to 4,050, a decline of another 8%.
Microsoft (MSFT)
The conference call saved Microsoft yesterday, which provided better-than-expected revenue guidance. The stock managed to get back to resistance at $305 and couldn’t get further. I think the solid results and guidance will help support Microsoft, meaning that it may fall less in a big move lower in the broader indexes. But support at $282 is critical to maintaining.
That’s all I have for today, not feeling the greatest.
-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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