In the brutal volatility, gold and oil sag after the peak, 10-year yields jump after the plunge, the Nasdaq peaks after the plunge and the Fed can focus on tightening

Markets are “working”, rather than panicking.

By Wolf Richter for WOLF STREET.

For days there was enthusiastic talk on Wall Street that a Russian invasion of Ukraine would hit the markets, which would then spook the Fed and force it away from rate hikes and QT, or at least faster rate hikes and QT. And today’s market action was precisely what was needed to blow that talk out of the water.

The Nasdaq opened down 3.5%, with a whiff of panic in the air. Then it climbed 886 points and closed with a 3.3% gain, at 13,474, which left it just 16.9% from its 52-week high in November, instead of down. a “bear market”. It was a peak of 7% open to close!

The S&P 500 Index opened down 2.6%, and after rising 179 points or 4.4% open to close, it ended the day up 1.5%. That leaves the index down just 11% from its 52-week high.

The Dow climbed almost 1,000 points from open to close and squeaked in the green in the last few minutes, posting a gain for the day of 0.3%.

The Russell The 2000 index, which tracks small-cap stocks, peaked 5.4% open-to-close, gaining 2.7% from yesterday’s close, narrowing its decline from the high from 52 weeks to 18.8%.

Cryptos moved almost at the same pace as stocks, but even more exaggerated. Bitcoin plunged 9.5% from around $38,000 overnight to around $34,400, then spent the day recovering and is currently trading at $38,400, in the same range as yesterday.

Then there was the flip side, which also calmed the Fed’s nerves:

WTI Crude Oil Grade First-month contracts, after hitting $100 overnight, shattering many inflation assumptions, fell back into the $93 range by mid-afternoon. And everyone at the Fed and the White House breathed a sigh of relief.

The 10-year Treasury yield plunged something like 15 basis points overnight to 1.85% in the morning, a classic fear trade, but then started to rally and is currently back at 1.97%, business as usual was.

Gold contracts had climbed 4% to $1,975 overnight, in another classic fear trade, but then turned around and gave up more than that, falling to $1,886 by mid-afternoon.

Silver Contracts climbed around 4.5% overnight from $24.50 to $25.57 – another version of the fear trade – then spent the day dropping back down to around $24.

Buyers plunging into the stock market and buying everything in sight, hoping for a relief rally, demonstrating that the markets were “working,” as the Fed likes to call it, rather than locking in or panicking , it was exactly what was needed to keep the Fed on track with its tightening moves.

The fact that the gold and silver trade scare unfolded during the day and long-term Treasuries sold off during the day, after the day’s wild action in next day, with yields returning to where they were, was also reassuring for the Fed.

The Fed’s tightening measures will already be too weak, too late and too slow – they haven’t even started yet – to rein in the inflationary monster that the Fed’s long string of policy errors over the past 23 months has caused. sets off. The last thing the Fed needs is another distraction, like panicked markets, to shout out loud. And he got what he needed to stay on track.

But futures are currently moving in the opposite direction.

Not that it matters. Futures contracts have been everywhere. This market is so incredibly volatile that an observation one minute will be dodged by events an hour later.

Right now, futures on the Dow, S&P 500 and Nasdaq are all down nearly 0.5%. WTI moved closer to $95. Gold ticked up to $1,914.

Obviously, this market is unstable and brutally volatile. But it “works”. Dip buyers are still there in large numbers. And there is nothing we see right now that will put a stop to the raging inflation monster.

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About Meredith Campagna

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