Monday, November 22, 2021

Morning Note: Stocks and Bonds Disagree...

The Biden Administration announced this morning the re-nomination of Fed Chair Jerome Powell. In that, as they say, equity markets detest uncertainty, headlines suggest that Powell's extension entirely explains a nice pop in the US major averages so far this morning.

Well, clearly, the stock market anticipates the same sort of herculean rescue efforts, as "needed", Chair Powell led ever since he defied the market gods in Q4 2018 (his promise to rain in liquidity, it is believed, explained the ~20% hit US stocks took during that stretch) as long as he's at the helm.

Thing is, clearly, the bond market disagrees: The yield on the 2-year treasury -- an anticipator of where the fed funds rate's headed -- is spiking nearly 11% as I type! That's big! And, yes, that's all about discounting a rate hike in the months to come. And, make no mistake, based on the action (reaction) this morning, that in no way jibes with stock market expectations. Hmm...

If the bond market indeed has it right, well, let's just say that turbulent waters are in the offing...

Asian equities were mixed overnight, with half of the 16 markets we track closing lower.

Europe leans green in terms of the number of bourses up vs down, however the degree of decline among the losers dwarfs the gains among this morning's winners. 11 up, 8 down.

US major averages are in rally mode to start the shortened week: Dow up 230 points (0.65%), SP500 up 0.87%, SP500 Equal Weight up 0.79%, Nasdaq 100 up 1.01%, Nasdaq Comp up 0.70%, Russell 2000 up 1.06%.

The VIX sits at 17.42, down 2.74%.

Oil futures are up 0.41%, gold's down 1.77%, silver's down 0.57%, copper futures are down 0.02% and the ag complex is up 0.02%.

The 10-yeat treasury is down (yield up [big]) and the dollar is up 0.36%.

Led by MP (rare earth miner), AMD (chip maker), metals miners, oil services and bank stocks -- but dragged gold, Viacom/CBS, Indian equities, solar stocks and TIP (treasury inflation protected bonds) -- our core portfolio is up 0.38% to start the session.

The following comes from a book aimed at traders, ah, but make no mistake, it applies equally to investors:

"The biggest challenge in trading is not choosing what asset class to trade, or when to buy and sell, or what percentage of your capital to risk on each trade. The biggest challenge in trading is to manage your self. You are a bundle of emotions, memories, history, knowledge, and bias. You can be smart and do stupid things. You can make a hard job impossible by making irrational and compulsive decisions."
--Donnelly, Brent. Alpha Trader: The Mindset, Methodology and Mathematics of Professional Trading

Have a great day!

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