Market Blitzkrieg! US Stocks Fall 7% At Opening, Entire US Treasury And Dollar Swap Curve Below 1%

Now this is something you don’t see every day. A true market blitzkrieg at opening.

A 15-minute trading halt took hold after the S&P 500 Index fell 7% to 2,764.21 as of 9:34 a.m. in New York, triggering the breaker for the first time since December 2008 at the depths of the financial crisis.

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And the US Treasury 10-year yield plunged 33.3% to 0.429%.

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Leaving the entire US Treasury and Dollar Swaps curves below 1%.

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Commodities are getting crush too. Thanks in part to Saudi Arabia turning on the oil flow (but not if spot price < extraction cost).

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Put skew is in play.

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The VIX is at its highest level since the financial crisis.

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Where is Jerome Powell and The Federal Reserve?

The Federal Reserve said on Monday that it will increase the amount of money it is pumping into short-term borrowing markets during the current turmoil, reversing an attempt to wean investors off financing it has been providing.

Update at 4:00 pm EST. Dow down 2025 points or 7.83%. For today.

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Limbo Rock! US Treasury 10Y Yield Falls 12.6 Basis Points To 0.926% As Dow Drops 800 Points

The Washington Post had a howler of a story yesterday: “U.S. markets post big gains as Joe Biden’s Super Tuesday surge offers coronavirus respite”

It that was true, it was a very short-term effect given that the Dow dropped 800 points this morning.

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Or was it something else … like the IMF throwing $50 billion at the Coronavirus. And more stimulus from Central Banks like The Federal Reserve? But those effects were short-lived too.

The US 10Y Treasury yield fell another 12.6 basis points this AM to 0.926%. The lowest in history.

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And Freddie Mac’s 30Y mortgage survey rate (green line) continues to follow the 10Y Treasury rate down the rabbit hole.

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How long will rates go?

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I want to thank Rick Sharga for remembering that I was one of the few that predicted what is happening today with interest and mortgage rates while most others predicted mortgage rates would rise above 8%.

Death of Small Firm Effect? FAAMG (Tech) Index Is Killing Small Firm Index (With The Help Of Uncle Jay)

The small firm effect is a theory that purports  that smaller firms, or those companies with a small market capitalization, outperform larger companies.

However, since 2019, larger cap firms have been outperforming small cap firms with small cap firms having trouble beating Treasuries!!

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The FAAMG index, Facebook, Amazon, Apple, Microsoft, Google, Alibaba, etc. has been skyrocketing in price.

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The recent surge in FAAMG corresponds to the reversal in Federal Reserve tightening.

Of course, Apple (AAPL) just issued a warning Monday that it may fail to meet this quarter’s sales guidance thanks to slower production and weaker demand due to the disease known as COVID-19.

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That is why we diversify!

Oobie-doobie!

 

 

70% Chance Of Recession In Next Six Months (According To MIT and State Street Study)

According to a new study by MIT and State Street, there is a 70% chance of recession in next six months.

The researchers created an index comprised of four factors and then used the Mahalanobis distance — a measure initially used to analyze human skulls — to determine how current market conditions compare to prior recessions.

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Using this principle, the researchers analyzed four market factors — industrial production, nonfarm payrolls, stock market return and the slope of the yield curve — on a monthly basis. They then measured how the current relationship between the four metrics compares to historical readings.

This recession measure is at odds with other recession probability forecasts which forecast a recession in the next twelve months at only 28% or less.

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Recession is defined as two consecutive  quarters of negative GDP growth.  Well, it is possible that the coronavirus will damage China GDP and maybe US GDP, but the MIT/State Street study is based on Industrial Production, Non-farm payrolls, the stock market and the yield curve slope. Only the yield curve slope (orange line) and Industrial Production (yellow dashed line) are showing recession-like trends. 

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Unless of course, MIT/State Street are saying there is a stock market bubble that will burst.

Here is a visualization of the impending recession and Mahalanobis skull measure.

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