Equities were volatile yesterday, at one time sending the markets lower for the fifth consecutive day, the longest stretch since early December. The selloff was led by the same companies that led the averages higher…mega size technologies. A late afternoon rebound that pushed equites into the black occurred in the same sector.
The cause for the selloff; inflation and interest rates. The markets are now pricing a Fed peak rate of 5.55% by July, compared to an expected pivot in July at around a 4.80% rate. Equities—specifically highly valued equities—have not been repriced to reflect this higher rate. About two weeks ago it was believed the overnight rate would be around 4.5% in July/August and around 4.0% by December.
This new version of tomorrow’s reality—the one that has been endorsed and promoted by the Federal Reserve—is now just beginning to be discounted.
The NASDAQ 100 is testing a key technical level that has been in place since September, which is also close to the 200 day moving average according to Bloomberg. If violated, selling can accelerate.
There are several bulge bracket firms who believe the NASDAQ could decline around 25% to 30% from current levels to reflect this new version of tomorrow’s reality, the result of interest rates and inflation.
Today the personal consumption expenditure index (PCE) is released. The PCE is the Federal Reserve’s preferred measure of inflation and any upside or downside surprise can impact trading.
Analysts are expecting a 0.5% monthly increase and a 5.0% year over year gain. The core rate is believed to have risen by 0.4% and 4.3%, respectively.
Last night the foreign markets were mixed. London was up 0.19%, Paris down 0.57% and Frankfurt down 0.58%. China was down 0.62%, Japan up 1.29% and Hang Seng down 1.68%. Dow and NASADQ futures are down 0.5% and 1.0%, respectively ahead of the PCE data. The 10-year is off 8/32 to yield 3.92%.
