No Change… FOMC decision is out and of course rates remain unchanged near zero as does the current rate of asset purchases. Equities are applauding as the median dot plot still shows rates on hold through 2023 (though 7 members now see a 2023 hike vs 5 back in December) and Fed forecasts show core inflation right around their target for the next 3 years (aka anything higher is “transitory.”) The statement has also been tweaked to acknowledge that recent economic data has been more optimistic for the recovery. The S&P is trying to remain green though Treasury yields have bounced back to where they were pre-announcement (DXY falling too).  A good job of threading the needle of recovery vs inflation / tapering but we’ll see if that remains the case when Powell is done answering the coming barrage of inflation questions…

Great Expectations?…Tweet of the day goes to whoever pointed out “A year ago today, you could’ve bought Tesla at $89/share. Instead, you bought 264 rolls of toilet paper and 50 bottles of bleach.” Ughhh. That aside, nearly everything has been working in the stock market over the last week with the S&P trading at ATHs. But the S&P, close to extreme overbought territory (as shown in the chart below), isn’t feeling all that fresh today. Markets were well bid from the off, trading decent overnight, the stimulus cheques in the mail and the world’s biggest asset manager saying the size and speed of the rebound is not yet being appreciated. However, markets have been soggy all morning as Tech came off its highs and oil declined. Not many catalysts of note, but plenty going on in in the Autos space with Volkswagen (+7%) back above Dieselgate levels as they unveiled plans to dominate the EV market over Tesla (-2.5%). Volkswagen Ords have seen a 35% move in the last ten trading days vs a +17% move in the more liquid Prefs over the same period. Lots of speculation and second guessing as to what is going on there but not many firm answers. Energy (XLE) is finally taking a bit of a breather -2.6% and the Financial sector has also taken a back seat for the time being. One other thing being watched is how the semis act around the 50-day moving average as a leading indicator for the broader market. Note, the Philadelphia SOX index managed to re-take its 50-DMA yesterday and so far it’s holding above this level today. Today’s Retail Sales report for the month of February missed estimates by a wide margin, so all will be watching tomorrow’s economic data on Homebuilder Sentiment, Building Permits, and Housing Starts for telling trends. Obviously, tomorrow’s Fed meeting won’t be a “live one” from an interest rate or QE policy perspective, but expectations are all the current rage.

Restart the Cycle?… After yesterday’s jarring Tech rebound put a screeching halt to the recent Rotation trend, the cogs are slowly beginning to turn again as the Nasdaq is giving back its early gains and the Dow powers ahead to new highs . Of course yesterday’s action never exactly felt “sustainable” but middling CPI data this morning delivered fresh hope for inflation-concerned Growth names. That relief is proving to be “transitory” even as bond yields have continued to slide after demand for the 10-year Treasury auction was seen as “good enough.” Semis and the FANG Gang (Autos, Tech, Software) are the S&P laggards once again, and Values sectors (Banks, Energy, Materials) are back on top.

When I Dip, You Dip, We Dip….The growth/momo traders have stepped in for some good old fashioned panic-buying today, across every index, but mainly in big-tech, lifting the Nasdaq up a stunning 4% from last night’s close. Yesterday’s reversal of Growth/Value fortunes was remarkable, and today’s reversal of the reversal is equally so. Reports of an intervention by the Chinese govt buying this morning initially stemmed the overnight bleeding and encouraged a heck of a Turnaround Tuesday for the Nasdaq, which has the index back above 13,000. Either way, the BTD crowd came in firing this morning, bigging up all the major US indices. Of course, green arrows for Nasdaq are also predicated on bond yields behaving, and after the ruckus the 7-yr Treasury auction 2 weeks ago, traders were on edge going into the 3-yr this afternoon. However, solid buyside demand met the supply and helped push yields lower across the curve, as the bond market collectively exhaled. There are plenty more catalysts left this week that could stir things up again in either direction. Feb CPI / PPI later in the week are also circled on calendars, and with Crude and Coppers moves since January, you can expect some inflation heat will have investors once again sweating over Powell’s “transitory” declarations (though crude and copper are both retracting gains today). Have we seen the worst of short-term readjustment towards a broader recovery and stronger economy? The path to the long-term cyclical revival may have already begun, but that would mean cyclical assets have further to run.

More of the Same? – Nothing ever seems to be good enough these days. Today’s tape has been messy and volatile especially after a non-farm payrolls figure that caught many off guard. And it was good! But this is where Powell’s words yesterday were a concern, choosing to provide nothing in the way of a Fed plan were yields to rise too quicky. The promising job news had equities going better early on but the 10-year again flirting with the 1.60 level stemmed that move. Yields have eased as the day has progressed and equities have recaptured their footing some but the theme we’ve seen throughout the week is the same, namely tech lagging although at least it’s gone green on the day. Tesla has grabbed much of the attention, -14% on the week but Apple has now hit a 3m relative low. A close below that could have it under-performing by another 20%. Energy names the best as yesterday’s OPEC+ surprise continues to reverberate while defensives have more of a bid than we’ve seen of late. The violent nature of the week’s sell-off hasn’t resulted in the tidy +Value/-Growth we’ve become accustomed to. Rampant bullishness in terms of equity allocation by sell-side strategists as exhibited below hasn’t been this high in nearly 10 years and the last time it was triggered, stocks were a fair bit lower 12 months later.

Tech-tonic Shifts… Things are definitely starting to feel a little unstable around here. Once the beneficiary of being pulled higher by weighty Tech, US indices are feeling a little seasick as it’s been a rough ride this week dealing with some heavy doses of Rotation. After the Nasdaq Composite closed below its 13k support level yesterday, the index is again dictating the pace: it first rallied over +2% from early session lows, only to fall even further over the last 2 hours as the 10-year yield jumped from 1.48% to 1.54% in a matter of minutes as Powell spoke (more on that below). We’re not in full panic mode yet, but it’s getting ugly and cushions are running thin as the S&P and CCMP are now negative ytd, and the high-flying Nasdaq 100 is now in correction territory (worse than -10% from Feb peak).

In Like A Lion… Apparently there’s an old saying “If March comes in like a lion, it will go out like a lamb” that has ties tracing back to the weather, zodiac signs, and even the Bible. It’s unclear if the adage will equally apply to the stock market, though we’re off to a good start as US equities are roaring back following Feb’s frazzled finale. There’s plenty of good news out on the re-opening front (JNJ’s vaccine approval, stimulus moving on to the Senate, Feb ISM beats, every Apple store in the US now reopened) but of course the real story today is the sell-off in Treasuries finally calming down (for now) with the 10-year yield consolidating below 1.5%. The pause (and some rest over the weekend) has allowed traders’ to catch their breath and reassess – that’s led to today’s action taking on more of a “buy everything back after a bad week” feel than any discernible reopening “theme” (SPYG +2.3%, SPYV +2.4%). When all sectors are pulling the same direction the result is obviously powerful: as of right now the SPX is on track for its best one-day performance since last June.

Getting Hot in Here – And not the “everything is on fire” type of hot but rather the beads of sweat/clammy hands iteration. Trying to pick out the S&P “leaders” today was like trying to spot a chameleon as it was a sea of red, not one sector flashing green and it wasn’t really close. To say there was a fair bit of carnage would be appropriate as the Nasdaq had its 2nd day of more than 2% losses in 4 and while the last two days saw selling abate as the day progressed, that hasn’t been the case thus far. Semis and homebuilders are two of the “standouts” while the WFH stocks also get shellacked. Monthly rebalances could’ve been something to point to as portfolios looked to correct the outperformance of stocks month to date, but that would fly in the face of what we’ve seen from the bond market today (more below). Interestingly, today’s selloff comes just as bears looked to be in the fetal position, the AAII survey suggesting they’ve practically given up. The chart below was triggered from the move on Monday and highlights current market volatility; pretty rare and possibly worrying.

The Notorious BTD… Sometimes a boot and rally is all that’s needed to get the partying back on track. Yesterday’s wild comeback put to rest any doubt that the Buy The Dip mantra has faded, with the S&P fighting back to a positive finish after being down -1.8% for only the 11th time the last decade. That’s made is a lot easier for US indices to put on a repeat performance today: another break higher for Treasury yields sent equity futures lower before the open, but the damage never got serious as FOMO and Fed speakers have continued to help the market come to terms with the new reflation environment. That rebound has turned into a full on reopening celebration, with the S&P only a measly 25bps away from a new all-time closing high! Not much dip left to buy it seems…

Tech Trek… The initial panicky reaction this morning as investors fretted over a modest, if rapid, rise in yields, has since worn off a bit, thanks to cooler heads prevailing (many believe rates are far from being raised for various reasons). Putting the 10Y in perspective, it is at 1.35%, well below any level it traded at prior to the Covid crash of 2020— and financial conditions are still close to the loosest they have ever been. In that same vein, stocks bounced off their lows after Fed Chair Powell’s prepared testimony to Congress eased fears of a policy change. Powell said price pressures remain mostly muted and the economic outlook is still “uncertain.” Despite the reassurance, the Nasdaq is down 1.8%, as investors try to come to terms with the thought that in a rising rate environment, their math starts to change. Over the past six weeks, a record $19 bn has flowed into tech funds, according to EPFR global data. The S&P information technology sector is down for a sixth straight day, the longest losing streak since August 2019 and the Russell is down 2.3% in the past 2 days. Investors are also hastily taking profits in the pandemic winners whose valuations have reached historically high levels —Tesla and Apple have traded down 13% and 4.5% respectively, in the past 2 days (Apple down 11% this month). Could this be the beginning of market jitters or just a bit of a much expected rotation into cyclicals (energy and financials are two of the top performers today), while tech takes a backseat (for once).