Jay’s Jawboning Jolts Bonds, Triggers ‘Golden Crosses’ In Stocks & Bitcoin

The US equity market was the most visibly ‘shook’ by the much-anticipated comments from Fed Chair Powell today as an initial kneejerk higher (not hawkish enough) was crushed when Jay said in remarks to the Economic Club of Washington that:

“The reality is if we continue to get strong labor market reports or higher inflation reports, it might be the case that we have to raise rates more than is now expected.”

As Bloomberg reported, rather than moving toward the market’s view that the Fed would be able to cut rates at some point this year, Powell saw the data as confirming his perception that disinflation has barely begun.

That reversed the initial dovish response in rate-trajectory expectations, leaving them unchanged on the day (still both significantly more hawkish than at the FOMC meeting)…

Source: Bloomberg

Nothing new or surprising but for a brief few minutes it wiped the lisptick off the equity market pig. However, dip-buyers rampaged right back in and lifted everything back near the highs of the day, led by Nasdaq, up over 2%, followed by the S&P and Dow…

None of which should have been a surprise to premium subs…

Trader Positioning Ahead Of Powell Hints At Another Delta Squeezehttps://t.co/5yeN0t02xY

— zerohedge (@zerohedge) February 7, 2023

It’s worth noting that the S&P twice tested up to the pre-payrolls print levels today…

Most notably, today’s rampage higher was not driven by a classic short-squeeze as “most shorted” stocks actually ended the day lower…

Source: Bloomberg

M(AI)crosoft rallied back above $2 trillion market cap…

Source: Bloomberg

The S&P 500’s recent exuberance has sparked a ‘Golden Cross’ (50DMA crossing above its 200DMA) for the first time since July 2020…

Source: Bloomberg

Bitcoin’s gains also triggered a ‘Golden Cross’ for the first time since Sept 2021…

Source: Bloomberg

And while we are on the topic of ‘Golden Cross’, gold also triggered one last week…

Source: Bloomberg

But, on the other side of the scale, the US Dollar Index (BBDXY) triggered a ‘Death Cross’ last week, and we note that today’s spike (before rolling over) reached up close to the 50DMA…

Source: Bloomberg

Treasuries were mixed on the day with the short-end outperforming (3Y -1.5bps, 30Y +4bps). Yields are still all higher post-FOMC led by the short-end…

Source: Bloomberg

For some context on today’s action, yields plunged on Powell’s initial words, then reversed on his hawkishness…

Source: Bloomberg

Bonds & Stocks decoupled notably after Powell’s interview ended…

Source: Bloomberg

Oil prices soared today as investors grew more confident in China’s demand outlook (on the heels of Saudi Aramco increasing most of its official selling prices for shipments to Asia in March), with WTI back above $77…

Finally, as the Nasdaq 100 Index approaches a bull market and earnings estimates are trending down, valuations have swelled to expensive levels compared with real bond yields, posing a risk to the rally.

Source: Bloomberg

As Bloomberg notes, the tech-heavy benchmark’s forward price-to-earnings ratio has jumped to 24, the highest level since April 2022, spurred by bets that inflation has peaked and the Federal Reserve will pivot soon. The move is at odds with the inflation-protected 10-year Treasury yield, which remains high on fears that a buoyant job market and stronger-than-expected economic data will keep the pressure on the Fed to stay hawkish.

And US equity market cap remains decoupled from Fed bank reserves… and that has not ended well in the past…

Source: Bloomberg

Are we in for an overbought retracement?

Source: Bloomberg

Maybe Powell would like a little ‘tightening’ of financial conditions? Though, given the following, he will be lucky…

And this is why the bear market rally will continue pic.twitter.com/3ilNvsQUp0

— zerohedge (@zerohedge) February 7, 2023