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In Brutal Volatility, Gold & Oil Sag after Spike, 10-Year Yield Jumps after Plunge, Nasdaq Spikes after Dive, and the Fed Can Focus on Tightening

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Publié le 27 février 2022
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Markets are “functioning,” rather than panicking.

By Wolf Richter for WOLF STREET.

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

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

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

The Dow soared by nearly 1,000 points open-to-close and squeaked into the green over the last few minutes, eking out a gain for the day of 0.3%.

The Russell 2000 index, tracking small-cap stocks, went through a 5.4% open-to-close spike, gaining 2.7% from yesterday’s close, which whittled down its decline from the 52-week high to 18.8%.

Cryptos moved in near lockstep with stocks, but in an even more exaggerated manner. Bitcoin plunged 9.5% from about $38,000 overnight to about $34,400 and then spent the day working its way back up and currently trades at $38,400, in the same range as yesterday.

Then there was the other side of the coin, which also soothed the Fed’s nerves:

Crude oil grade WTI front-month contracts, after spiking to $100 overnight, rattling a lot of inflation assumptions, fell back to the $93 range by mid-afternoon. And everyone at the Fed and in 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 began working its way back up, and is currently back at 1.97%, as if nothing happened.

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

Silver contracts spiked about 4.5% overnight from $24.50 to $25.57 – another version of the fear trade – and then spent the day stair-stepping back down to about $24.

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

That the fear trade in gold and silver unwound during the day, and that long-dated Treasury securities sold off during the day, after the wild overnight action, with yields ending back up where they had been, was also reassuring for the Fed.

The Fed’s tightening moves will already be too little, too late, and too slow – they haven’t even started yet – to rein in the inflation monster that the Fed’s long series of policy errors over the past 23 months have unleashed. The last thing that the Fed needs is another distraction, such as panicky markets, for crying out loud. And it got what it needed to stay on track.

But futures are currently moving in the opposite direction.

Not that it matters. Futures have been all over the place. This market is so stunningly volatile that an observation one minute will be obviated by events an hour later.

At the moment, Dow, S&P 500, and Nasdaq futures are all down by close to 0.5%. WTI has ticked up closer to $95. Gold ticked up to $1,914.

Clearly, this market is unsettled and brutally volatile. But it’s “functioning.” Dip buyers are still out there in large numbers. And there is nothing we’re seeing as of this moment that will put a damper on the raging inflation monster.

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