The volatility is insane! Most applaud intense volatility on the upside but bemoan it on the downside.
According to Bloomberg, in three weeks, the NASDAQ 100 has made an abrupt U-turn that went from correction territory to a 15-month high, adding roughly $2 trillion in market value. The capitalization increase was primarily focused in the “Magnificent Seven,” as been the case for the entire year.
This $2 trillion dollar increase in capitalization is nominally lower than the total capitalization of the Russell 2000 which is around $2.4 trillion.
The S & P 500 capitalization has increased by $2.7 trillion for the same period, giving more evidence of the narrowness of the advance.
The catalyst for this advance is the belief the Fed will pivot sooner rather than later with market expectations of a 50-bps reduction in the overnight rate in July. The scenario has been stated repeatedly since the start of 2022.
Longer dated Treasuries have also surged in price. Since October 19, the thirty-year benchmark was yielding 5.11% and the 10-year 4.99%. The prognostication for both benchmarks was horrific at that juncture.
At the time of this writing the 30- and 10-year Treasury is yielding 4.59% and 4.41%, respectively. This move down in rates is incredible given the lack of a crisis. Many attribute this gargantuan rally to short covering given the dire outlook held on October 19, amplified by a dearth of liquidity.
Inflation has moderated but in many regards is “extremely sticky” around 4% which is double the Fed’s mandated speed limit.
Will interest rate sentiment again change which then may increase the odds of a sudden reversal in the NASDAQ 100 back towards correction territory?
FINRA, the SEC, and many hedge funds are lamenting about the lack of liquidity, where the markets are overly influenced by algorithmic and technology-based trading relying upon 5-word headlines to automatically make preprogrammed investment decision if an event occurs or a level violated.
As noted above, most applaud the gains but bemoan the downside of this type of trading.
What will happen this holiday shortened week?
The economic calendar is comprised of the index of leading economic indicators and other manufacturing data points, several housing statistics, Minutes from the recent FOMC meeting and a sentiment indicator.
Last night the foreign markets were mixed. London was down 0.20%, Paris up 0.17% and Frankfurt down 0.20%. China was up 0.46%, Japan down 0.59% and Hang Seng up 1.86%.
Futures are flat. Sentiment indicators are pricing in about a 30% chance of a first Fed rate cut in March as the dovish narrative remains in place. The 10-year is off 12/32 to yield 4.48%.
