This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. A mild rethink of yesterday's Fed reaction, as investors contend with the fact that a resolutely dovish Fed not yet alarmed by rising long-term yields in a ripping economy means those yields can push higher, forcing gut checks and potential pain points in equity sectors along the way. The programmed response (literally) has been to sell big-cap growth and emerging-tech stocks with each lift in yields, which – fine, there's some math and investment theory behind it. And it was a handy, timely excuse to take the air out of over-loved, over-inflated "disruptive tech" stocks in the ARK-iverse. But it's not a linear function or a law of nature that this remains the play. It's notable that with yields making new cycle highs the Nasdaq 100 is 5% above its lows of ten days ago, so this relationship is loosening a bit. And of course the S & P is managing to hover not far below its highs. There's no denying the velocity of the sell-off in bonds and the relative outperformance of stocks have reached extremes, at least in the short term. Long-term Treasuries are more oversold than they've been in many years and large speculators are massively short Treasury futures (a contrary tactical signal). So some sort of pause/pullback in yields looks like a decent bet before too long. That would also cause a swing higher in Nasdaq, most likely. Here's S & P 500 vs 7-10-year Treasuries back 18 years. Thin air up here: Then again, the prospect of ~10% nominal GDP growth with the 10-year yield under 2% and real (inflation-adjusted) yields still negative is also a pretty extreme set-up. So far the equity market is maximizing all this, favoring makers of stuff (tractors, cars, houses), takers of yield (banks) and pulling back from software and ecommerce. Broad action in the S & P 500 is still resilient though restrained by the big stocks and the shadow of the 4,000 level above (maybe). The index has spent time each day over the past week revisiting the 3,940-3,950 zone, basically last month's highs, in a familiar testing pattern. So far over this post-October advance the index has tended to find its footing near or just below the former monthly high, in a pretty textbook bull-market rhythm. Pressure is building for some sort of shift of institutional cash out of equities and into fixed income given vast divergence in performance this year. Quarterly rebalancings have coincided with some big market inflection points (September 2018, December 2018, March 2020) though not always. Target-date retirement funds are pretty much auto-pilot rebalancers and they have a lot of the 401(k) money these days. Sentiment has moderated and the rally has slowed since late-January – S & P is up less than 3% since then. So it's not clear the backdrop is ripe for a broader/deeper retrenchment right away, though it wouldn't take much to get the animal spirits flowing heavy again with another push to S & P 4K, unceasing SPACmania and NFT/crypto shark-jumping. Market breadth is very mixed, almost 50-50 up/down. Stock/sector-picker's market. Traders pushing hard on the cyclical/value names as these become the momentum vehicles, while defensive growth sags. VIX up a smidge, but taking the tech slippage in stride. Divergent markets that kept the index caught in offsetting currents should let VIX settle down more, and the VIX futures are still arranged in a market-friendly way.
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This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics.