Stocks Slump, Bonds Jump As Fed Fears “Very High” Asset Valuations

Stocks Slump, Bonds Jump As Fed Fears “Very High” Asset Valuations

Not a great day for the infinite-liquidity-dependent bulls: Surging JOLTS data (but still hiring is lagging) prompted some equity investor anxiety as The Fed may see that as ‘strong’ enough to taper. Soaring ‘shortages‘ in the Beige Book suggest inflation is anything but transitory (again pressuring taper action from The Fed). Renewed anxiety over the debt ceiling (as Yellen urged Congress to fix things) brings back ‘Stealth QT’ fears. And finally, Fed’s Williams warned that “right now, asset valuations are ‘very high'”.

He is right…

Source: Bloomberg

And combined with anxiety over tomorrow’s ECB meeting (which is expected to signal the beginning of the end of their asset buying spree), US equities took another spill today, with Small Caps leading the drop (and Nasdaq the least bad horse in this week’s glue factory)…

The Dow dropped to its 50DMA and stabilized…

Small Caps slipped to their 100DMA (stabilizing between that and the 50DMA)…

Defensives were bid all day as Cyclicals extended yesterday’s losses…

Source: Bloomberg

FANG Stocks chopped around but ended the day lower after yesterdays’ big surge…

Source: Bloomberg

Interestingly, “stay at home freaked out” stocks notably  outperformed “get out and live your f**king life” stocks today…

Source: Bloomberg

What happens if the “IF ‘Dip’ THEN ‘Buy'” guru strategy begins to fail?

Bonds erased most of yesterday’s losses…

Source: Bloomberg

With a very strong 10Y auction sending the yields back to unch for the shortened week…

Source: Bloomberg

The dollar extended its recent bounce but stalled at the nadir of the drop from Powell’s Jackson Hole speech…

Source: Bloomberg

Cryptos extended yesterday’s losses but on a far smaller scale. Bitcoin was pretty much unchanged in the big picture…

Source: Bloomberg

Gold slipped back below $1800 again thanks to another monkeyhammering around the US equity cash open…

WTI rallied on the day, ahead of tonight’s API inventory data, back above $69…

Finally, Bloomberg notes that demand for S&P hedges is soaring as the market rallies into taper uncertainty. The gap between one-year and one-month implied volatility in the largest exchange-traded fund tracking the S&P 500 Index hit 7.6 points on Friday, a nine-year high, showing increased demand for protection against longer-term risks.

Source: Bloomberg

As the equity gauge hovers near a record, anxiety is on the rise about everything from the timing of the Federal Reserve’s withdrawal of its bond-buying program to elevated inflation to slowing growth. “Investors remain in ‘trust but verify’ mode,” said Stuart Kaiser, head of equity derivatives research at UBS Group AG. “Markets reset all-time highs but risk premiums remain fairly wide.”

Tyler Durden
Wed, 09/08/2021 – 16:00

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