Markets are in the green this morning after the worst day since June 2020. It was a blood bath across the table, the DOW fell 3.9%, the S&P fell 4.2% and the NAS fell 5.16%. Futures have reversed from earlier this morning and now the DOW FUT -0.15%, S&P -0.13%, NAS -0.12%, Gold -0.24%, Oil -0.82%, and the US 10yr up 3bps @3.46%. Asia-Pacific markets were down big and European markets are mostly in the red. Inflation numbers came in hotter than expected yesterday, not surprising if you have been buying anything at all. Energy prices came down which may be seen as a success for some however everything else continues to rise. The narrative will soon switch from energy driven inflation to general inflation chaos. We likely have seen peak inflation over the summer, however while inflation is rising this fast, we see no way for the Fed to pivot. Mortgage applications crashed as rates are the highest, they have been since 08. PPI numbers out later today. Technical note out later today.
Yesterday’s price action was pretty much what you would have expected for a 1000pt drop in the DOW. The market opened at the highs and closed at near the lows. While there was some internal improvement prior to yesterday’s move, it is again deteriorating within. Adv/dec was -25 to 1, only 38% of their stocks are above the 50dma, and 32% are above the 200dam, less than 0.5% of the SPX reached a 20-day high while 18% of the SPX reach new 20-day lows, finally the volume was high on a down day another indicator of down breath. Of the FANGM+T, none are above their 200dma and TSLA is the only one that is above their 50dma. It is our opinion that we will first see the average stock bottom first but in order to say we are in a sustainable uptrend we need to see the Mega Caps recover. If the SPX break through the early sep lows, we see the previous lows being tested. Rates made a big move yesterday; we continue to see 10yr above 3.5%.
Market News: We are currently stuck in the middle of a Fed cyclone where all are focused the next move of the Fed. The market is pricing in 75bps next week with a small chance of 100bps, 100 seems unlikely to us as Powell has been trying not to send large shockwaves through the markets without telegraphing it first. The EU is expected to reconsider some Russian sanctions, the Hungarian Foreign Ministry State Secretary said. Ukraine is making some progress pushing Russians out of a few regions of the country, a move that is likely to infuriate Putin even more. The Biden administration is considering refilling the SPR is WTI is near $80, essentially placing a near term price bottom in for the commodity. While we have seen some demand fall off as gas prices got extremely high, a refill of the SPR would add a significant amount of demand to the market. NATO is conducting some war games in the eastern Mediterranean Sea. Nuclear power is slowing getting more interest across the world. Twitter shareholders approve Musk’s purchase of the company. Soft Bank is considering a new Vision Fund after the most recent one got wrecked. Hurricane Tracker: Many of the storms passed while we were on vacation. There are 2 potential storms in the eastern pacific and one in the Atlantic.