The Dow posted a gain on Tuesday but for the broader indices the losing streak continued. Despite the losses, the Volatility Index (VIX) was down yesterday as stocks traded in a rather tight range all day, and some modest afternoon gains were wiped out after interest rate comment's from the Fed. Yields and the dollar were up again, and that's keeping the pressure on as stocks try to price in this latest push higher in yields.
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The market actually held up better than I would have expected given the comments by Federal Reserve Chair Jerome Powell who basically said "higher for longer", when it comes to interest rates this year. He applauded the resilience of the economy saying, “More recent data shows solid growth and continued strength in the labor market." But he also said there's a "lack of further progress so far this year on returning to our 2% inflation goal.”
The probability of a rate cut in June is now below 20%.
There were 2 stocks down yesterday for every one that was positive on both the NYSE and the Nasdaq. Share volume was 3 to 1 in favor of declining shares over advancing on the NYSE but the Nasdaq was more flat as the more heavily traded big tech stocks actually held up well yesterday.
The 10-year Treasury Yield continues to climb as 4.7% came into the picture at the highs yesterday. Some kind of dip here is likely, especially with that gap opened below, but until this settles into a range again and establishes a high end, stocks could continue to struggle. It may not matter if that high end is 4.75%, 5%, or more, the stock market just wants to know the range so it can price it in and move on.
The dollar is also adjusting for decent economic numbers and the Atlanta Fed still has its latest GDP estimate for the first quarter near 3% at +2.9%.
The Dow is down over 2000-points from its highs and if we look at a longer term chart I can see some potential support levels near 37,000, if it even gets that low. A worse case scenario would be if it tries to reenter that trading channel.
So much for this being a strong seasonal week for stocks. The same thing happened last month where the typically bullish expiration week was down in March, but it rebounded the week after, which historically is more bearish. Perhaps this month we will get the same opposite effect.
The S&P 500 (C-fund) tried to bounce a couple of times yesterday, but in the end the Fed's "higher for longer" comments left the index below its 50-day EMA for a second straight day. I'm not sure if that new descending channel (blue) is legit yet, but the fact that the S&P fell below it on Monday, and it became resistance yesterday, may be a good indication where the resistance might be. I won't count on that, but I'm watching to see how firm it is. The open gap below 5000 seems like an obvious place for this to go, but is it too obvious? Dip buyers may not want to wait that long.
DWCPF (S-fund) chart has been damaged technically a lot more than the S&P 500, which makes sense given the impact higher interest rates have on smaller companies. After falling below the 50-day EMA on Monday, it closed below the 100-day average yesterday.
The EFA (I-fund) lagged on the day as the relentless dollar is putting the pressure on here. Open gaps and old support lines give us a mishmash of possibilities for this pullback, with one of them being that yesterday's low of 76 could be support.
BND (Bonds / F-fund) was down again and it will keep sliding until yields stop going higher. If investors believe Israel is going to retaliate this weekend in Iran, we could see a flight to safety and bonds before the end of the week.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
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