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Subjective market review (1-Feb-2024)

Zdjęcie autora: Jarosław JamkaJarosław Jamka

This time it was the FED’s day. Feeling a little lost? No worry. This could be normal on a day like this. Each investor (bull, bear, etc.) got something for themselves and their base-case investment scenario… 


What happened? Stocks: S&P500 -1.67%; Nasdaq100 -1.94%, Russell 2000 -2.45%, Microsoft -2.71% (first day after earnings), Alphabet -7.55% (first day after earnings). An additional attraction is the New York Community Bank (NYCB), which fell by 37.7% (first day after earnings), what resulted in the KRE regional bank index (SPDR S&P Regional Banking ETF) falling as much as 5.85%, Yet, here were also positives such as Novo Nordisk (first day after results) +5.25%.


In the case of US treasuries, we had a massive bull-steepening day: 2Y -12.6 bps, 10Y -12.0 bps, 30Y -8.0 bps.


In order not to lose the big picture, let's look at what happened pre-FED: stocks had already started a correction, reacting negatively to the blowout Microsoft earnings and strong Alphabet’s ones. The tragic results of the NYCB contributed to the correction, also dragging down other regional banks amid fears of a possible repeat of the March 2023 crisis.


Yet, in the case of bonds, it was practically a perfect day (pre-FED) for falling yields: starting with soft inflation in Australia, Germany, but also in France. Then in the USA we had a weaker than expected ECI increase (Employment Cost Index - an important data point), lower employment growth according to ADP and a decline in Chicago PMI. Additionally, the QRA announcement (UST bond supply structure) turned out to be in line with market expectations. However, falling NYCB shares caused a massive bull-steepening of the yield curve.


Then came the FED, the Hawkish FED. As usual on such a day, thousands of investors from all over the world analyzed every sentence in the FOMC Statement and listened carefully to every Powell's word during the presser... We got a lot of volatility during Powell’s presser.

Yet in my opinion, there are two arguments that this does not mean too much right now:

  • firstly, there is still a lot of time to the next FED's meeting on March 20 (it remains to be seen if there will be a rate cut) and

  • secondly, markets know how big the difference can be between what the Fed says and what it does... (just remember the FED’s pivot from December 2023).


Figure 1 shows yesterday's reaction of two major asset classes: US stocks and bonds. Figure 2 shows the TLT (iShares 20+ Year Treasury Bond ETF) performance from the rates cycle bottoms.



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