Subscribe to receive this daily commentary directly in your email
Independent macro and options research, published every trading day — $85/mo or $750/yr
Subscribe →3/16/22
STOCKS – None
MACRO – SPY, Rates
- Post FOMC Thoughts
- RTM: The FED Is Likely To Be More Hawkish Than The Market Is Ready For [Daily Update]
- RTM: The Next Leg Lower May Have Begun [DAILY UPDATE]
- RTM Tactical Update: Your Guide To This Week’s FOMC Meeting
- RTM: Fed May Be One And Done [Daily Update]
- RTM: VISA May Be Heading Sharply Lower [OPTIONS IDEA]
- RTM: Options And Bonds Were Right [DAILY UPDATE]
- Who’s Smarter? Bonds And Options Or Equities [Daily Update]
- RTM: Market Liquidity Is Thin
- RTM Exclusive: Apple May Be Heading For A Big Drop
Stocks finished higher for the second day in a row, as traders looked to close puts into the final hour of trading, which led to a volatility melt. The options delta hedging action was positive, indicating traders were closing out SPX puts. The SPY and QQQ ETFs had negative delta hedging, suggesting that traders were buying puts and selling calls in those ETFs.
But really, the path of monetary policy the Fed laid out was for rates to be above the neutral rate in 2023 and 2024. That was more hawkish than even my hawkish expectations. From listening to Powell’s press conference, the Fed aims for tighter financial conditions, and those tighter conditions will lead to lower multiples and stock prices.
When financial conditions tighten, stocks go down. Financial conditions are already tighter today than in 2018; as they go higher, stocks will decline in value. So if you think the Fed said nothing today, you are entirely wrong. They indicated they wanted to raise rates to 2.8% for 2023 and 2024, which is above the neutral rate. They are telling us that they want financial conditions to tighten. Remember, do not fight the Fed; it works both ways.
Navigating The Market · By Michael Kramer Independent macro and options research, published every trading day. Daily written analysis covering gamma exposure, dealer flows, key levels, and the macro drivers moving markets. Includes full video access. Recent Subscriber Analysis
Additionally, the difference between this rate hiking cycle and past rate hiking cycles is that now the economy is growing at an anemic pace; we are not at the start or early stages of an expansion; this expansion is slowing dramatically. Atlanta Fed is indicating that first-quarter growth is around 1.2%.
S&P 500 (SPY)
The S&P 500 is still very much in a downtrend, and the past 2 days look very similar to January 28 and 29 rally, and the February 24 and February 25 rally. I don’t think there is much else here; then some put values getting burned up and closed out into today’s expiration date.
Rates
The two-year was up to 1.94% by day’s end and will need to go much higher than that if the Fed gets its target rate to 2.8% by next year. It is likely headed to 2.2% in the short term.
The Market Chronicles · Video Membership The daily market commentary, delivered in video. Same daily market analysis, in video form — available to YouTube channel members only. Latest Videos
Additionally, the yield curve saw the 7-yr rate move higher than the 10-yr rate, and I suspect the 5-yr will be moving higher than 10-Yr very shortly.
None of this should be bullish for stocks.
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.
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.
Rising Oil, Rising Rates, and the Illusion of Calm Into Earnings
Mott Capital's Market Chronicles 6 hours ago