Daily Market Update – May 12, 2015 (Close)
Whatever yesterday didn’t offer, in terms of a catalyst for moving markets forward, today was offering even less by the looks of the pre-opening futures.
On the contrary, markets were heading strongly lower, with the catalyst for that being another spike in bond interest rates. But later in the day, those same bond prices served as the catalyst to erase the very strong early losses.
What the catalyst for either of the bond movements seen during the day or the past couple of days is unclear, but the bond market seems to be putting its money on rates heading higher sooner than we may have all believed.
With retailers beginning to report earnings tomorrow and with the Retail Sales Report being released tomorrow, we’ll see whether the consumer based component of GDP is pointing toward expansion, just as we got to see this morning’s JOLT Survey indicating that there was no such upward wage pressure.
So far there isn’t too much indication of any kind of upward pressure on prices or wages, although there is some recent increase in commodity prices.
If those retail numbers don’t support the thesis that the bond market is backing at the moment, it would be reasonable to expect rates to head back lower, just as they did in March after a spike then, too. The JOLT Survey data may have also been the reason that those rates backed off this morning, as well.
What would remain to be seen, though, is whether the stock market would then rally in light of the fact that bonds would become less desirable in the context of disappointing retail sales. They did so today, although it wasn’t really a rally per se, more a case of just atoning for the significant early losses.
With the pre-open futures pointing to a steep decline to begin the day, that tends not to be the sort of thing that reverses itself once trading begins for real. Although that’s exactly what did happen a month or so ago, generally that’s not the case.
But it was again the case today.
While the bond market is predicting that rates are going to head up sooner rather than later, it’s hard to see where that upward pressure is going to come from in the immediate future.
It’s also hard to picture a scenario where the Retail Sales Report or the actual earnings releases from the major retailers are going to give any good reason to send stocks higher.
Numbers that are unexpectedly good will only serve to re-inforce the bond market’s move that reflects increasing inflation pressure.
Maybe what’s needed is something like last week’s Employment Situation Report, where the numbers simply meet expectations and neither surprised nor disappointed.
This may simply be the perfect time for a “no news is good news” kind of economic and earnings reports. For now the status quo would be just fine and that would give the bond market plenty of opportunity to make itself less competitive with stocks as it reconsiders it stance on the timing of interest rate increases.
While the various markets think about where they’re going and with some prices likely to be pushed further from their strikes, there is at least 3 more days to see some sort of recovery once today’s results are sealed.
That’s still plenty of time for some kind of bounce back from yesterday’s decline and what was a surprisingly benign day today.
I didn’t expect to be doing too much today other than watching the market unfold and hoping that there is some self-limiting mechanism that recognizes that things really aren’t that bad to warrant anything more than a small and short lived kind of adjustment to prices.
Luckily that hoping didn’t go to waste today. We’ll see if it has any staying power tomorrow.