Stock Market Update: Brief Overnight Gains Wiped Out; Bond Yields and Crude Oil Prices Rise

Overnight Market Activity

In the early hours of the morning, the stock market seemed to be on an upward trajectory after the Bank of Japan (BoJ) made a dovish decision to hold off on any rate hikes until market stability was restored. This led to a spike in USDJPY and equity futures, with investors eagerly jumping in. However, this optimism was short-lived as the US cash equity market opened and selling began. The selling was further escalated by a disappointing 10-year auction and increasing geopolitical tensions in Ukraine, Russia, and the Middle East.

Market Close

By the time the market closed, major indices were at their lowest point of the day, with Small Caps and Nasdaq experiencing the most significant losses, swinging from a 2% gain to a 1% loss. US equities and USDJPY also completely decoupled.

Index Performance

The Nasdaq and Russell 2000 remained within their recent range, with the rebound stalling. The S&P 500 tested up to its 100-day moving average in the morning before plunging lower. The Dow briefly tested above its 50-day moving average at the open but was then pushed back below its 100-day moving average.

Trading Activity

Goldman's trading desk noted that trading volumes were muted, tracking at 20% below the trailing 5-day average. The S&P top of book liquidity was also extremely poor, sitting around the $4 million level, 63% below the 20-day moving average. Hedge funds and long-only investors were both skewing better for sale.

Volatility Index

The Volatility Index (VIX) pushed higher once again, testing up towards 30.

Treasury Yields and Rate-Cut Expectations

Treasury yields were higher across the board, with the long-end underperforming. This was not helped by a very ugly tail at the 10-year auction. Rate-cut expectations dropped for 2025 but were flat for 2024.

Crude Oil Prices

Crude oil prices rallied, with WTI testing up towards $76, well off the six-month lows set earlier in the week.

Dollar and Gold

The dollar managed modest gains thanks to the JPY weakness, but there was no follow-through. This small gain for the dollar resulted in a small loss for gold, with the precious metal unable to hold above $2400.

Bitcoin

Bitcoin tested up to around $58,000 overnight but faced selling pressure during the US session.

Commodities

Finally, the ongoing decline in commodities continues to send warning signals. With spot commodity prices just one percent away from three-year lows, it's not a message of a 'soft landing'.

Bottom Line

The stock market's brief overnight gains were quickly wiped out, leading to a disappointing close. With geopolitical tensions, disappointing auctions, and ongoing commodity declines, the market's outlook remains uncertain. What are your thoughts on these developments? Do you think the market will recover, or are we in for more turbulence? Share your thoughts and this article with your friends. Don't forget to sign up for the Daily Briefing, delivered to your inbox every day at 6pm.