Friday, June 18, 2021

Even  though we’re now in the final trading day of the week, a day and a half removed from the big economic news — the Fed announcement about rates, buybacks and new dot-plots — we still appear beholden to what the Fed believes about the U.S. economy, and market participants are moving to the sidelines pretty much across the board right now. At its pre-market lows, the Dow was -350 points, the S&P 500 -35 and the Nasdaq -91.

We’ve abated a bit now a half-hour from Friday’s opening bell. And today marks the fairly rare “quadruple witching” period — where options, futures, and indexes of both options and futures all expire at the same time — look to increase volume and perhaps volatility. This is especially pronounced here in “summer hours” of a market Friday, when normal expectations might be for a lower-volume trading market.

Yesterday, Initial Jobless Claims rose to 412K — the highest in the past four weeks, after troughing at 375K the previous week, but still represents the sixth week beneath a “five handle” on new jobless claims. This is not to say jobless claims are finished flowing downward, especially with some 9+ million job openings in the U.S. at this time — an all-time record. Continuing Claims were flat week over week at 3.52 million, representing pandemic-era lows but perhaps plateauing here.

Ultimately, Wednesday’s economic report from the Fed continues to entice inflation to enter the market, ostensibly to assist full employment, which is still off the mark. We see the hand played by the monetary policy body this week: we’d rather have higher inflation and full employment than curb inflation while millions of Americans still lie on their couches. The new dot-plot sees interest rate levels increasing next year; in the meantime, all systems are still go.

So why does the market feel it’s the time to sell? Possibly because a ceiling is finally in place. Not just interest rates, but a tapering of bond buybacks is likely in our future. This may be still a ways off, depending on new data regarding inflation, employment, etc. But as of now, markets feel the cap and are trading accordingly. That’s not to say we’re definitely finishing in the red today, but a cautious attitude prevails.

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