Market Overview: Stocks, Yields, and Dollar Rise, China Suffers
Market Volatility Amid CPI Threat
Despite the looming threat of the Consumer Price Index (CPI) over the volatility markets, there has been a notable shift in the financial landscape. The Federal Reserve's hawkish minutes, which revealed a more significant division over the scale of cuts than previously thought, have led to a decrease in rate-cut expectations.
US Market Performance
Despite the uncertain climate, the Dow Jones Industrial Average has outperformed, while the NASDAQ and S&P 500 also showed solid performance. However, Small Caps relinquished early gains. The S&P 500 hit another all-time intraday record high, marking the strongest year-to-date performance of the 21st century. Despite these gains, the US market is not cheap.
Chinese Market Struggles
Across the Pacific, Beijing's market took a hit. Goldman Sachs' trading desk reported record single-day selling in Chinese equities. This net selling was 1.4 times larger than the previous record and represents a 6.5 standard deviation event. Most of the net selling was driven by selling in A-shares after the market reopened following a week-long holiday. Hedge funds not only unwound their long positions but also added shorts to their books.
US Market Continues to Gain
In the US, Mag7 stocks managed to secure gains once again. It's also worth noting that Goldman's "Republican Victory" basket has been significantly outperforming the "Democratic Victory" basket in recent days, with both now tied.
Bond-Stock Relationship
The past few weeks have seen an interesting dynamic in the bond-stock relationship. Treasury yields were higher across the board, pushing 2Y and 10Y further above 4.00% and 20Y to 4.40%. The belly of the curve is the worst performer of the week for now.
US Sovereign Risk
Meanwhile, US sovereign risk is increasing, now at its highest since December. The dollar continues to rally, now at its strongest since mid-August, retracing all the drop since the August CPI print.
Gold and Bitcoin
The strength of the dollar weighed down gold prices modestly, but spot held above $2600. Bitcoin, on the other hand, was hit hard, testing down to $61,000 intraday.
Crude Prices and Mortgage Rates
Crude prices fell again amid dwindling hopes of more China stimuli and a significant crude build. In contrast, homeowners hoping for rate cuts to ease their burden are facing the opposite scenario. Growth and inflation anxiety is pushing the long end of the curve up, sending mortgage rates dramatically higher, back near 7%, and leading to a significant drop in mortgage applications.
Bottom Line
The financial landscape is constantly shifting, with the threat of CPI, hawkish minutes from The Fed, and fluctuations in various markets. While the US market is experiencing gains, the Chinese market is struggling. Meanwhile, the bond-stock relationship is evolving, and the dollar continues to rally. With all these changes, what are your thoughts on the current financial climate? Share this article with your friends and sign up for the Daily Briefing, which is delivered every day at 6pm.
