The State of the Markets:
I usually don't write on Friday mornings. However, with the Dow experiencing its second quadruple-digit dance to the downside of the week yesterday, I figured it was probably time to make an exception.
The goal of this morning's hopefully not-so meandering market missive is to try and answer the key question of the day. As in, what the heck is going on here?
Okay, let's dive in and try to make some sense of yesterday's trash-job in the stock market. Cutting to the chase, the narrative seems to be that once you get past the high-speed algorithmic trading (those robos DO love following their trends on a millisecond basis!), the forced selling (can you say, "margin call?"), and the deleveraging that is likely occurring in hedgie-land (hey guys, maybe this isn't the time to have the pedal to the metal anymore, right?), the focus lands squarely on interest rates.
The Story of Rates - A Two Parter
In my opinion, there are really two parts to the rate story. First, there is the level of rates. And then there is the speed at which rates are rising.
The market can probably handle the first part. However, the second part means that something is changing and adjustments are being made - and being made quickly.
Lest we forget, bond yields have been rising for a while now. In other words, the rate move didn't start happening last week. The breakout that seems to be attracting everyone's attention began on December 19, 2017. And since that time, the yield on the U.S. 10-Year has risen from 2.39% to 2.85%. That's a pretty steep climb. And some will even argue that this move, like the stock market before it, has "gone parabolic."
One of the keys here is ...