Market Brief – Thursday 3/21/19

Either Fear of Missing Out is hitting equities this morning, or Apple is buying back all the shares they can before they are forced to enter their blackout period. Either way, investors are misinterpreting the Fed’s pause to mean they are easing. As I covered in my Wednesday night video, it just means that short-term interest rates are going to hold at current levels and the Fed is going to maintain a static balance sheet, at least for the time being.

Treasury yields fell in overnight trading as concerns of slowing global growth are starting to become a reality. In early trading, seven-year Treasury yields fell below the Federal Funds rate, meaning they are inverted. Ten-year Treasury yields are 2-3 basis points from inversion. Inverted yield curves are not good, which is why bank stocks are selling off.

Retail investors have been flooding back into the markets after the various computer-managed strategies have all switched their allocations back to 100% equities. At the same time, bond prices have rallied as Treasury yields have fallen.

Apple is driving the market higher today as it appears to be rushing to buy as many shares back prior to its earnings announcement. Today marks the beginning of the biggest week for corporate share buyback blackouts, but for most technology companies, they will be in the weeks that follow.

As investors bought stocks today, they also resumed shorting U.S. Treasury bonds, since shorting Treasuries generates cash to buy other assets, or in this case, stocks. Speculators who are shorting the Treasury market cited tighter monetary policy as a reason to short, but they are being forced to continue shorting in an attempt to hold their existing positions.

The Fed is not stopping their balance sheet unwinding program until the end of September, so there will continue to be downward pressure on Treasury yields. Yield could easily fall faster should the equity market stumble, which would cause the computer-algorithmic trading programs to sell stocks for bonds.

Stocks closed higher sending the S&P 500 within a few points of forming a 15-month head-and-shoulders price-chart pattern, which would suggest the S&P 500 is headed to 2,200 or below if the pattern is valid.

Treasury yields closed the day slightly lower as sellers resumed trying to push yields back up. Physical gold is trying to rally over its resistance level but continues to find sellers. Oil and gas stocks were up ahead of their first-quarter earnings announcements, which are expected to show negative double-digit Earnings-Per-Share growth against expectations at the start of the year for double-digit EPS growth in the first quarter. Agricultural commodities continue their move higher as they closed one penny over their 50-day moving average.

The M2 Money Supply increased to 4.10% on an annualized basis, while the 6-month growth rate fell slightly to 1.99% and the 3-month growth rate held steady at 1.01%.