Crude Oil and Tech Stocks Take a Hit; Bonds, Gold, and Bitcoin See a Rise

Significant Market Shifts

There were significant market shifts following a series of events. Reports of Israel agreeing not to attack energy facilities led to a decrease in the geopolitical risk premium on crude oil. The Empire Fed manufacturing survey experienced a sharp decline from its multi-year highs, which challenged the 'no landing' narrative. ASML's poor earnings and outlook affected the AI "insane demand" narrative, while LVMH's announcement impacted the 'consumer is strong' narrative.

Market Reactions

These events resulted in a bid for bonds (lower yields), a drop in oil prices, and a rise in bitcoin, gold, and the dollar. Growth stocks took a hit as value spiked. ASML's stocks dropped by 17%, erasing all of its 2024 gains. This affected big-tech, leading to a significant decrease in Mag7 stocks, which wiped out all of yesterday's gains.

Impact on Major Indices

The Nasdaq also took a hit, which along with the S&P, was weighed down while Small Caps soared. The Dow was hit hard by UNH's big drop and selling pressure affected everything by the close, eliminating most of the Russell 2000's gains for the day. Small Caps outperformed Big-Tech by the most since July, marking the biggest 3-day outperformance since July.

Performance of Value and Growth Stocks

Value stocks outperformed Growth stocks significantly early on, but this difference was almost non-existent by the close. More bank earnings today resulted in a hard hit for Citi, but Wells Fargo outperformed the rest.

VIX and Bonds

The VIX continued to decouple from spot SPX, rising back above 20 today. After being closed yesterday, bonds reopened mixed with the long-end outperforming. The short-end saw yields pushed higher during the US day session, which flattened the yield curve dramatically.

Dollar, Gold, and Oil Prices

The dollar continued to rise, breaking above its 100- and 200-DMAs today to its highest close since the start of August. Despite the strength of the dollar, gold also continued to rise, nearing record highs. Oil prices fell following Washington headlines that Israel would not bomb energy facilities.

Bitcoin's Performance

Bitcoin broke out of its down-channel today, blowing through the 200DMA, and it may be on its way to new highs as it tracks global liquidity.

Inflation Expectations

The market's inflation expectations have been increasing in recent weeks. As Deutsche Bank reports, 5yr US inflation swaps have seen their largest 5-week climb since just before SVB's collapse in March 2023, an event that shifted the narrative away from around 4 more hikes to imminent cuts for a period of time.

Bottom Line

This day has seen a significant shift in the market, with crude oil and tech stocks taking a hit, while bonds, gold, and bitcoin saw a rise. These changes were influenced by a series of events and announcements that challenged various market narratives. As the market continues to react and adjust, it will be interesting to see the long-term effects of these shifts. What are your thoughts on these market changes? Share your opinions and discuss with your friends. Don't forget to sign up for the Daily Briefing, which is available every day at 6pm.