So much for the “Santa Claus” rally.  It appears the upside reversal we saw in treasury yields seems to be too much for the markets to bear.  Yields on the 10-year notes are up 13.5% from their 12/13 lows.  The S&P, Nasdaq, Dow, and Russell all managed to top out that same day, and rally attempts have been pretty uninspiring since then.  Tech stocks are leading the way.  The Nasdaq has slumped approximately 13% from its recent high of 12,339.  Comparatively, the S&P and Russell are off approximately 9%.  The Dow has been the big winner over the last couple weeks, having lost only about 6% from its 12/13 high of 35228.  There is still some time for the seasonal rally to take shape, but unless we see yields slip again, it seems unlikely.  China reopening offers a glimmer of hope to at least pump the breaks on the selloff, but the surge in Covid infections in the country seems to have the market skeptical that it will be enough to provide a lift. 

Fed Funds are suggesting we’re likely to see an increase of 25 basis points at the Feb 1st FOMC meeting.  There is a lot of time between now and then, so that could certainly change.  However, Fed Chair Jerome Powell has been committed to tackling inflation via higher rates.  Jobs numbers have still been steady, and consumption remains strong.  Until they start to see some pain on the employment front and some progress on the inflation readings like CPI, PPI, and PCE, the Fed pivot is probably dead in the water.  The FOMC will release the minutes from their December meeting on January 4th, and we’ll get the December jobs data on January 6th.  Those releases will certainly help shape the narrative about future monetary policy. 

Daily Nasdaq Chart :

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Bill Dixon

Senior Market Strategist
Bill began his career working with a firm of technical commodity traders specializing in the treasury and metal markets. In 2006 he moved over to Lind-Waldock as a broker. Bill joined RJO Futures in 2011.
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