Stocks finished the day lower, with the S&P 500 falling around 24 bps, certainly not the disaster that many analysts envisioned given the sanction the US and Europe put on Russia. Maybe something will break at some point, but at this point, nada.
Again, the biggest threat to the market will not come until Wednesday when Jay Powell talks in front of Congress. Either wisely or foolishly, the Fed Fund Futures are now pricing in fewer rate hikes by December 2022, dropping by 20 basis points to 1.37%. That is a pretty significant move, and I suspect it will turn out to be wrong. His written text should come out Tuesday afternoon after the close of trading.
Inflation Expectations ETF
Inflation expectations certainly are not falling and have been steadily rising as measured by the ProShares Inflation Expectations ETF (NYSE:RINF).
TIPS Bond ETF
Real rates were also surging again Monday, with the iShares TIPS Bond ETF (NYSE:TIP) increasing nearly 1.8%.
I think the market was getting ahead of itself in thinking that the Fed will be less aggressive, raising rates this year, and was making a huge mistake. I expect Jay Powell to be grilled on inflation and have a hawkish tone in his testimony, and I do not think the market has adequately priced in that risk.
Based on the rising inflation expectation, it was likely to put even more pressure on tightening monetary policy. I’m not even sure he has been confirmed yet. There is a footnote on his profile page that he was named Chair Pro Tempore on Feb. 4 until confirmed by the Senate.
S&P 500
I had thought a diamond pattern was forming on the S&P 500 earlier on Monday, but that failed to produce the drop I was looking for. A broadening wedge was forming; whether that turns into a diamond pattern is yet to be seen. If I was correct and the market was offside, come Wednesday, we will likely see a sharp move lower in the S&P 500 as yields reprice higher, pushing the SPX back to the 4,100 level.
NASDAQ QQQ ETF
The rising inflation expectations and falling real rates helped boost the NASDAQ again, with the Invesco QQQ Trust (NASDAQ:QQQ)s rising on the day by 30 bps. The wedge in the QQQ had a different look, which appeared to be more of a rising wedge.
Square (Block)
Block (NYSE:SQ) rose to resistance yesterday at $133, and it stopped. I think the stock reverses lower now and fills the gap at $85.
Citigroup (NYSE:C) was hit hard Monday on falling rates and worries over their Russian exposure. It was sitting right on support at $58.65, and if that breaks there is a long way to go to $53.40.
