U.S. stocks closed sharply lower on Monday as rising bond yields weighed on market-leading growth stocks ahead of crucial inflation data.
All three major U.S. stock indexes ended deep in negative territory, with tech and tech-adjacent stocks pulling the Nasdaq down 2.2%.
“There’s been two kinds of sell-offs in the past month or two,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. “There’s the rising yields which primarily affects tech and other growth stocks, and then there’s the recession/economic slowdown sell-off that affects energy and various materials’ names. “Today you’re seeing both.”
The benchmark 10-year U.S. Treasury yield hovered near a three-year high ahead of key inflation data expected on Tuesday.
“All eyes on an inflation number that’s probably going to be the highest in 40 years, which could prompt higher and more frequent (interest) rate hikes from the Fed,” Tuz added.
MacDailyNews Take: Batten down the hatches for Tuesday’s inflation lead balloon.
As we wrote back when the so-called “experts” were calling inflation “transitory” (joke, ignorance, or lie, you decide):
‘Tis best to get a handle on inflation, if you know how, while you still can. – MacDailyNews, May 11, 2021
Earlier this year, Interactive Brokers founder Thomas Peterffy said, “Inflation is 7% — 1% or 2% [in interest rate hikes] doesn’t mean anything. If they really wanted to stop inflation, they would have to raise rates to 4%, 5%, 6%.”
Inflation is repudiation. — Calvin Coolidge
When a business or an individual spends more than it makes, it goes bankrupt. When government does it, it sends you the bill. And when government does it for 40 years, the bill comes in two ways: higher taxes and inflation. Make no mistake about it, inflation is a tax and not by accident. — Ronald Reagan
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“Transitory” inflation was stated for soundbites and for the glib masses. No one in the know considered that the truth. Mass amounts of printing and borrowing coupled with supply side slow downs makes it almost impossible for inflation to subside. While tomorrow could see a tick in the right direction, or not, the big picture cwill remain ugly. The Ukraine conflict and IMHO odd responses has just added fuel to this already white hot fire. Either interest rates are raised significantly to slow down, what I’ll call, the speed of the economic loop or a recession slows down the speed of the economic loop. This isn’t rocket science, it is pretty straight forward reality. The only other possibility beyond this is out of nowhere manufacturing starts pumping at a high rate to flood the business and consumer space (not going to happen any time soon). Otherwise it is simple: too many dollars will continue to chase too few goods that will create rising prices. So either the cost of money goes up substantially or products flood the selling channels. There can’t be anyone who believes the product changes channels will become flooded anytime soon.
If you are a long term investor, this is just a valley that comes with the journey. If you are s hurt term investor, the volatility can be a windfall if played right. Right now the shorts are earning better returns but anything can happen on any given day.
Inflation? What inflation?