Here's why the stock market is in turmoil and why it's not likely to end anytime soon

Are the central banks controlling the markets or are the markets now controlling them?

  • Wild trading in stocks Thursday was the result of a sharp move up in bond yields due to higher government spending and a hawkish tone from England’s central bank.
  • The U.S. Treasury market is expected to continue to push toward a higher path of rates, which are tightly correlated to the stock market.
  • Strategists say the 10-year yield could reach 3 percent sooner than expected, and that is a level stock pros say is a problem for equities.

There’s a not-so-quiet rebellion going on in the bond market, and it threatens to take 10-year yields above 3 percent much faster than expected just a few weeks ago.
As a result, the bumpy ride for stocks could continue for a while.
There are some powerful forces at work, with global growth strong, central banks moving to tighten policy and the government’s deficit spending creating more and more Treasury supply. So, the bond market has entered a zone of no return for now, where Treasurys are expected to price in higher yields in a global sea change for bonds.
Thursday’s sharp sell-off in stocks, with the S&P 500 closing down 3.8 percent , reversed a sharp move higher in bond yields, as buyers sought safety. The 10-year yield was at 2.81 percent from a high of 2.88 percent earlier in the day and the rising yields had started the stock market spiral lower.
“There’s going to be an interplay, a bit of push and pull between the rates market and equity market,” said Mark Cabana, head of U.S. short rate strategy at Bank of America Merrill Lynch.
Cabana said his call for a 2.90 percent 10-year this year is clearly at risk. He said technicians are watching 2.98 percent, and then 3.28 percent on the charts.

Source: CNBC

Are the central banks controlling the markets or are the markets now controlling them?

The Dow plunged more than 1,000 points just before the final bell clanged Thursday. It represented a full market correction, defined as a 10 percent drop from its 52-week high, the first time it had done so since 2016.
The S&P 500 also dropped 3.7 percent to a new low for the week.
After a record run-up, stock markets have been newly volatile following a stronger-than-expected January jobs report. Some investors saw the fastest rate of wage increases in recent times as a signal that the Fed might hike interest rates higher and sought to lock in gains, leading to the sell-off.
The Market Time Bomb That’s Bigger Than the VIX

We are primarily funded by readers. Please subscribe and donate to support us!

Loan funds pose a potential liquidity problem, which could have a destabilizing effect.
As bad as the stock market turbulence has been from volatility-linked products, it could be even worse some day because of exchange-traded loan funds.
Stock tumbles have a way of pointing out investments that seemed like safe bets but turned out to be unstable, propped up solely by rising markets. And when these bets unwind they tend to take down the wider market with them. In the recent market drop, volatility-linked investment funds, which in retrospect are being called an $8 billion ticking time bomb, emerged as the culprit. A number of the exchange-traded products were wiped out, and it appears the unraveling hastened the stock market’s fall.
Exchange-traded loan funds bear a lot of similarity to the volatility funds that average investors have flocked to for safety, except that they are much bigger. Volatility-linked ETFs grew to include about $8 billion in investments. The PowerShares Senior Loan ETF has nearly that much in it alone. Last month, LCD, a unit within S&P Global Market Intelligence, said that assets under management in loan funds had grown to more than $156 billion, up from around $110 billion two years ago.
Critics have grumbled about bond funds for years but have been mostly ignored by investors who have piled into loan funds thinking that the floating-rate debt will protect them from losses when interest rates rise. Top bond fund manager Thomas Atteberry of FPA New Income has recently warned in investor presentations that leveraged loans may not offer the interest rate protection that investors are counting on.

Jim Cramer blames a ‘group of complete morons’ for blowing up the market
Watch the full Cramer rant here:

Illinois Is Awash in Debt Even Before 2019 Budget Pitch

Bloomberg17 hours ago
Illinois also is struggling with $129 billion of unfunded pension liabilities as of June 30 across the state’s five retirement systems, according to the Commission on Government Forecasting and Accountability. Illinois had $26.3 billion of general-obligation bonds outstanding as of July, according to Moody’s Investors Service, …

BOK warns of slow recovery of consumption due to household debt

Yonhap News11 hours ago
At the end of last September, South Korea’s household debt stood at 1,419.1 trillion won (US$1,306 billion). Although there is little risk that household debt could spark a financial crisis, household debt is growing faster than household income, choking off private consumption. Last month, the BOK raised its economic growth …

BOJ Kuroda: Need to stick with QE for price stability

Reuters7 hours ago
TOKYO (Reuters) – Bank of Japan Governor Haruhiko Kuroda said on Thursday he intended to stick with the central bank’s strong quantitative easing program to … Haruhiko Kuroda, Governor of the Bank of Japan, looks on as he attends the World Economic Forum (WEF) annual meeting in Davos, Switzerland January 26, …

South Korea to Keep Rates Accommodative, Says Debt Dragging on …

U.S. News & World Report11 hours ago
“Having said that, consumption recovery may be slower than it was in the past due to the growing debt repayment burden among other reasons.” … At 1,419.1 trillion won ($1.31 trillion), South Korea’s household debt is at about 190 percent of GDP, forcing consumers to spend less on items such as food and clothes …

CBO Reports January 2018 $174 Billion Federal Budget Deficit …

Sierra Sun Times1 hour ago
February 8, 2018 – The federal budget deficit was $174 billion for the first four months of fiscal year 2018, the Congressional Budget Office estimates, $16 billion more than the shortfall recorded during the same period last year. Revenues and outlays congressional budget office logo were higher, by 4 percent and 5 percent, …

Dan Walters: Surging pension costs push more California cities …

Napa Valley Register11 hours ago
From one end of California to the other, hundreds of cities are facing a tsunami of pension costs that officials say is forcing them to reduce vital services and could drive some—perhaps many—into functional insolvency or even bankruptcy.The system that manages pension plans for the state government and thousands of …

Retired teachers sickened by increase in healthcare costs

WOAI15 hours ago
That’s what retired principal Trace Mahbubani paid in January for premiums, doctors visits, and Tamilflu to treat her husband and herself. Mahbubani and nearly 250,000 other retired educators, custodians, cafeteria workers, and bus drivers are dealing with soaring health care costs in their state-run health plan.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.