When I started writing this commentary, Dow futures indicated an opening of +200 points for the index. Halfway through, Dow futures were down 25 points. As I am getting ready to hit the send button, Dow futures are up 100. So, anything goes again today. Bond prices are close to unchanged.
Monday’s 1,000-point drop had an identifiable villain, those complex volatility ETFs. But yesterday’s 1,000-point drop had no single culprit, other than the ongoing concern about interest rates. Some market gurus say this is just the stock market’s way of adjusting to a changing landscape for rates. After eight plus years of easy to almost no-cost money, rates do seem on an upward path. Once the period of adjustment is over, so they say, the stock market will settle down. But no one can know how much turbulence is left in this hissy fit about rates, assuming that is all it is.
Before stocks can stabilize, the bond market needs to stabilize. Bond prices did rally yesterday after the Dow collapsed, but the rally only managed to bring down yields from the intraday highs to close little changed on the day. Bond prices were much lower earlier this morning, but the stock flip has brought prices closer to unchanged. If bond yields do stabilize around these levels, then we will see if the stock market stabilizes as well. If not, the stock market has other concerns.
News from Washington
One thing that is no longer a concern, from a short-term perspective is a government shutdown. The government did shut down for a couple of hours last night, but the House came up with the votes to extend spending until March 23. But this is no ordinary short-term spending extension. This one also includes broad agreements on huge increases in military spending and some other programs favored by the Democrats. More importantly, it extends the debt ceiling one year. This is one possible negative event that is now off the table.
The March 23 spending extension is merely to give time to work out the details of the approved increases in spending. It does not change the debt ceiling or budget approvals. Those are set in stone. Another shutdown in March is not likely but would be insignificant if it does happen since the debt ceiling is in place.
We should be happy about the debt ceiling, and it is good to see the debt ceiling issue cleared up before it became a real problem. But, man oh man, that budget, or what we laughingly call a budget. It is a budget, if you define a budget as spending whatever the heck you want and then hoping like heck you can somehow pay for it in the future.
Economic report releases
If the markets give us any time to focus on anything but the markets next week, we do have several important economic numbers rolling out. Industrial Production, Retail Sales and the Consumer Price Index are the highlights. Bond traders will at least take time out to react to the CPI report. If any of the numbers matter next week, this will be the one.
As much as I enjoy active markets, I think I have had enough of this week. Haven’t you? This has felt like one very long week. Remember how long the week before Christmas felt when you were six? Yeah, that’s about how this one felt. So, it’s time to put a bow on this poop show of a week. Let’s see how it ends up. Are you ready?
Opening market reads
- The 2-year is 2.11%
- The 5-year is 2.54%
- The 10-year is down 3/32s to yield 2.83%
- The 30-year bond is lower by 7/32s at 3.14%