Market Reversal: Stocks, Bonds, Crypto, and Crude Plunge Ahead of Powell/PCE
Market Performance
The markets are experiencing a reversal of the positive momentum observed in the past few sessions. The Nasdaq was the top performer of the day, thanks to NVDA & META, but barely managed to close in the green. The rest of the US majors were in the red, with Small Caps being the biggest loser. This reversal doesn't seem to have any clear drivers, apart from potential anxiety ahead of Powell's speech and GDP announcement tomorrow and PCE on Friday.
Market Volatility
The volatility in the market is being noticed. Chris Hussey from Goldman Sachs notes that, beneath the surface, markets appear to be leaning into a mix of traditionally defensive and secularly growing pockets of the market. This includes Utilities, Tech, Communication Services, and Staples offsetting declines in more procyclical areas.
Yields on US Treasury Durations
Yields on most US Treasury durations are also higher, potentially signaling a more defensive posture by investors. The yield curve (2s10s) continues to bear-steepen, now at its steepest since June 2022.
Market Movements
However, with little new news to trade on, it's challenging to pinpoint what exactly is behind the move. Another interpretation of today's price action, including the outperformance from stocks related to power demand, AI, and higher 10-year yields, is increased confidence in the economy over the long term.
Stocks Performance
Mag7 stocks extended yesterday's gains but faded slightly as the day wore on. NVDA rallied notably but up to a key resistance level. NVDA topped $3 trillion market cap once again, with GOOGL and AMZN back above $2 trillion.
Trading Floor Insights
Goldman's trading floor noted that it was skewed small to buy with volumes quiet but S&P top of book (liquidity) bouncing back to much better levels ($11m+). Both HFs and LOs were net for sale. Risk-off flows continue to be seen on the trading desk.
Dollar, Gold and Crude Prices
The dollar was strong today, erasing the post-China stimulus weakness. Despite the dollar strength, gold managed small gains to a new record high. However, the strong dollar did weigh on crude prices which sank back below $70 (WTI) despite strong inventory draws.
Crypto Market
Crypto pumped and dumped, with Bitcoin testing down to $63,000 (after topping $64,500). US Sovereign risk remains extremely elevated relative to the last few months. This raises the question if crypto (and gold) is starting to sense something's breaking.
Bottom Line
The market is showing signs of volatility with stocks, bonds, crypto, and crude plunging ahead of Powell's speech and GDP announcement. While it's challenging to pinpoint the exact cause behind these movements, it's clear that investors are adopting a more defensive posture. As we continue to observe these market fluctuations, it's crucial to consider the potential impacts on the broader economy. What are your thoughts on these market movements? Share this article with your friends and sign up for the Daily Briefing, which is delivered every day at 6pm.
