MARCH 4, 2021
STOCKS – SQ, AMD, NVDA, LMND
MACRO – SPY
- MIDDAY VIDEO- BONDS MAY PUNISH POWELL
- MIDDAY NOTE: YIELDS CONTINUE TO RISE
- Morning Note: This Can Still Grow Much Worse
- Morning Notes: Yield Curve Suggest A Market Top Is Near
- Midday: Breaking
- Live Streaming Session On Friday 3.5.21 At 1 PM ET
- Midday Note: Indecision
- Morning Note: It All About TIPS Now
- Midday Note: Don’t Trust The Rally
Stocks had a rough day, with yields rising again. Powell didn’t help things when he spoke about keeping rates low for a really long time and that the Fed is far away from reaching its employment and inflation goals. It sounded similar to that October 2018 Q&A session when he said rates were far from neutral.
Clearly, the bond markets want Powell to rethink his QE and rate policy. Perhaps the bond market is daring Powell to institute yield curve control. I’ll tell you what, from listening to Powell today, rates will have to go much higher than their current levels before Powell blinks and caves. It took from October 2018 until January 2019 for Powell to cave into the market. The question is how long this time? We have two weeks to find out; that is when the next FOMC meeting is.
To make sure Powell is on the hot seat, I think the Bond market will inflict all kinds of pain. A move in the 10-year above 1.6% could easily send the rate to 1.95%.
The equity market takes its cues from the bond market. Valuations are derived from interest rates. So as rates rise, stock prices need to fall. In fact, for the first time since last year, the 10-year rate is again trading at a premium to the S&P 500 dividend yield.
If the 10-year rises back to 2%, don’t you think the yield on the S&P 500 should rise too? The only time that the S&P 500 had a lower dividend yield was, you guessed it: 1999 and 2000. An increase in the dividend yield of the S&P 500 by just 30 bps would push the index down to 3,140.
Anyway, Lemonade did not have a good day. It didn’t take long for it to break support at $106, and I still think the stock drops to $86. (Should be free to read – Lemonade’s Bubble Has Popped)
Square had a rough day too, so there is a good chance that the next level to watch for comes at $200.
I recall saying a few months that the deal for Xilinx would kill the stock and it would fall back to $75. I guess that was right, maybe I understand better than some people think. Hey, and just because I don’t always admit I’m wrong right away, it is for a reason. It is because I still have conviction in my view. (Should be free to read, not sure – AMD’s Stock Will Struggle Under The Weight Of Xilinx)
Nvidia is the same, the stock is likely heading lower, and $460 may only be the first stop. If support didn’t break today there is more level around $485, then it is on to $460, probably even lower. (Should be free to read – Nvidia’s Stock Declines May Have Only Just Begun)
Anyway, that’s enough.
Mott Capital Management, LLC is a registered investment adviser. 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. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.