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Interest rates spike as Wall Street sinks in rocky Thursday markets

Written By | Oct 4, 2018
interest rates

If we can ever figure this economic tangle out, you’ll be the first to know, and we’ll die rich.

WASHINGTON.  The worries we expressed in yesterday’s column look like they’re bearing fruit this morning. But not the tasty kind. We saw interest rates spike rather sharply during Wednesday trading activity, perhaps an overreaction to the Fed’s latest round of interest rate hikes. But those interest rates remain under upward pressure again Thursday morning, causing at least a momentary break in the Great Trump Rally’s current chapter.

Nasty, increasing interest rates = Heartburn on Wall Street

Thursday morning market futures were pinned solidly in the red even before the opening bell. That’s a situation that the folks over at always-colorful ZeroHedge described rather aptly.

“A sea of red has greeted stock traders across the world this morning after what one analyst called ‘monster moves’ in U.S. Treasury yields.”

Yep. So let’s see what else the Two Tylers had to say.

“The bond rout that sent 10Y Treasury yields to the highest since May 2011 promoted by stronger than expected US economic data, and which accelerated after upbeat, hawkish comments from Fed Chair Jerome Powell after the close, spread into Asia and Europe on Thursday, spurring more gains for the dollar and triggering widespread declines in equities.”

That’s a Germanic sentence if we ever saw one. Our SEO editor will flag us on that one, but it’s a direct quote.

Fixed income blues

Now, back to the Tylers, as they explore matters beyond those bearish interest rates. (Bold passages via ZeroHedge.)

“The catalyst for the selloff was the stronger than expected ADP private payrolls print and the near record print in the Services ISM survey which showed activity at its strongest since August 1997, sparking speculation the payrolls report on Friday could also surprise, with some suggesting a print as high as 500,000 was possible. Subsequent comments from Powell who said the economic outlook was “remarkably positive” and that rates might rise above ‘neutral’ helped the 10Y yield climb to 3.18% on Wednesday. U.S. jobs data on Friday may stoke boosting expectations for rate hikes into 2019, with the jobless rate seen dropping to 3.8 percent, matching the lowest since 1969.

“‘Fixed income is the center of the financial world, and it’s hard to have a conversation without talking about the monster moves we saw in yesterday’s U.S. trade,’said Chris Weston head of research at Pepperstone Group. ‘It’s a very rare occurrence to see U.S. Treasuries undergo such a huge move.’”

“The selloff in 10Y Treasuries, which caught traders by surprise with both its velocity and magnitude, continued overnight on Thursday sending the yield on 10Y TSYs as high as 3.2325%, the steepest daily increase since the shock outcome of the U.S. presidential election in November 2016, before fading to catch its breath amid massive trading volumes.”

Collateral damage in markets abroad

The Tylers add a dash of speculation to this mix, noting that traders became even more nervous after listening to Fed Chair Powell’s usual weird remarks. They seemed to predict an even more aggressive approach toward jacking up U.S. interest rates. China, too, continues to be an issue in this mix, as those U.S.interest rate hikes are clobbering emerging markets and the Chicom Conglomerate as well.

Ongoing Kavanaugh Kabuki also overhangs the markets

We would also add to these observations our own observation that the D.C. Swamp’s long-running Kavanaugh Kabuki seems to be entering its final act this weekend. This travesty, while not directly related to investing, is still a big overhang. One way or another, the Senate may bring down the curtain on this shameful episode within a couple of days.

The vicious impasse we’re seeing in the Senate on this Supreme Court nomination has gone way out of bounds with regard to Senatorial courtesy and a fair consideration of highly qualified nominees. It has degenerated into an ideological Battle Royal, and the stakes for the economy, as well as for American democracy, are as high as they’ve ever been.

If at least one if not both houses of Congress can no longer function, either to pass legislation or populate key offices and positions in the Executive and Judicial branches, we’re all in a “peck of trouble” as they used to say. As such, this judicial overhang quietly haunts Wall Street. If the Federal government and its regulatory agencies, gummed up by partisan politics, can no longer function smoothly – or at all – well, there’s that peck of trouble once again. The Street has always hated uncertainty.

CNBC contributor seems to agree with us, opining that stocks more “fragile” than they look

CNBC’s Fred Imbert seemed to agree with the sentiments we expressed in yesterday’s column. His own thoughts, appearing after Wednesday’s closing bell, reiterated in a slightly different way why this seemingly bullish market could be cruisin’ for a bruisin’. “Stocks may be trading at record highs,’ he wrote, “but the market looks far more fragile under the surface.”


“Among the signals: More stocks declining than rising, a greater number of 52-week lows than highs, and a drop in small-cap stocks.…

“‘The healthiest markets occur when the uptrend is broad based, which is not the situation in the present example,’ said Bruce Bittles, chief investment strategist at Baird.

New index highs, but more individual stock lows

While the major indexes are trading at or near record highs, the number of stocks listed at the New York Stock Exchange at 52-week lows was three times higher on Tuesday than those at 52-week highs, according to data from SentimenTrader. This is only the first time since Dec. 28, 1999 such a disparity took place and the second since 1965, the data show.

“Investors look at the number of 52-week highs and lows made by stocks as a sign of market participation. In other words, more stocks making 52-week highs signals broad participation in an uptrend. Meanwhile, fewer 52-week highs during an uptrend suggest limited participation.”

As we’ve already noted, the continuing bullish moves, particularly in the S&P 500, have masked the fact that a great many stocks are in decline. They are less influential in the larger, market-weighted trading averages. Therefore, they don’t influence the heftier moves of the big guys in the major indexes. Yet. But back to Fred Imbert.

“The overall S&P 500 gained 0.4 percent in September, but the average stock in the index actually fell 0.06 percent last month, according to data from Bespoke Investment Group. The main index is market-cap weighted, so bigger stocks have a bigger influence on the index.

“‘This is a result of the largest stocks in the S&P performing better than the smaller stocks in the index in September,’ Bespoke said in a note.”

So where do we go on Thursday? Apple, Amazon rumors are no help

Just after Thursday’s 9:30 a.m. opening bell, the Dow Jones Industrials were down a third of a percent. Likewise the broader-based S&P 500. But the tech-heavy NASDAQ has taken a bigger initial hit, off nearly ¾ of a percent. That’s likely due to a disputed Bloomberg piece. It claims that Chinese suppliers have sneaked a tiny spy processor into Amazon’s and Apple’s servers. Plus, perhaps, some Apple devices.

Both companies are issuing vehement denialsy. Yet both Apple (trading symbol: AAPL) and Amazon (AMZN) shares are getting hit anyway. Apple’s off only slightly. But those considerably more expensive Amazon shares are off a whopping $20 per share at the moment.

Once the rumor mill gets started, right or wrong, you’re guilty until you can prove yourself innocent. It’s the Bizarro version of what used to be the American system of fairness and justice. Judge Kavanaugh and his family are now well aware of this. Sadly, unfounded and unproven rumors can work that way against the stock market as well.

(UPDATE: 10:30 a.m. ET. Wall Street’s early plunge has deepened, as U.S. interest rates continue to spike. Particularly the U.S. Treasury’s benchmark 10-year notes, according to CNBC.

“The benchmark 10-year Treasury note yield reached its highest level since 2011. It broke above 3.2 percent before trading around 3.185 percent.”

The Dow is currently down about 220 points, a 0.81 percent loss. The S&P 500 is down nearly 21 points, a 0.71 percent loss. And the tech-heavy NASDAQ is getting clobbered. It’s currently showing a massive 1.27 percent loss, off a whopping 103 points at the 10:30 a.m. mark.



Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17