Monday, stocks fell 0.4% in Asia but rose 1.0% in Europe. Markets were closed in the U.S.
Tuesday, stocks gained 1.5% in Asia, 0.4% in Europe, and 2.6% in the U.S. on 13B shares traded. The 10-Year U.S. Treasury bond yield rose 2% higher to close at 3.31. The Dow, NASDAQ, and S&P 500 indices closed above their respective 30,000, 11,000, and 3700 benchmarks.
Wednesday, stocks fell 1.8% in Asia, 0.7% in Europe, and 0.4% in the U.S. on 12B shares traded. The 10-Year U.S. Treasury bond yield dropped 5% to close at 3.16.
Thursday, stocks lost 0.8% in Europe but gained 0.3% in Asia and in the U.S. on 13B shares traded. The 10-Year U.S. Treasury bond yield fell 3% to close at 3.07. Precious metals fell 2% while their miners declined twice that amount.
Friday, stocks gained 1.4% in Asia, 2.7% in Europe, and 2.8% in the U.S. on 20B shares traded. The VIX fell 6% to close at 27.23. The 10-Year U.S. Treasury bond yield rose 2% to close at 3.03.12. Precious metals miners rose 3%. The Dow, S&P 500, Apple, and IBM ended above 31,000, 3900, 140, and 140 respectively.
For the week, cryptocurrencies reversed their deep dive to gain about 15%. Stocks ramped up about 5%. So is that it? Is the bear market over? The rally on Friday confirmed positive trading sentiment with massive trading volume.
Despite the impressive move this week, the run feels more like a relief rally rather than a trend reversal. The VIX stands well above the pivot point of 20. Inflation remains barely moved. Starting this month, the Fed has committed to trim its balance sheet by $47.5B per month for three months followed by $95B monthly thereafter https://www.federalreserve.gov/newsevents/pressreleases/monetary20220504b.htm.
The point is, this FOMC roll-off headwind is just getting started https://fred.stlouisfed.org/series/WALCL and is combined with significant future semi-quarterly interest rate hikes. Unlike other recent times of Fed contraction, foreign central banks are not taking up the slack. While the date specified for when these actions will end is nebulous, the Fed must move inflation from the current 8.5% level back down to the 2% range.
Before the insane actions of Bernanke and his successors, the Fed balance sheet was under $1T. It’s now almost $9T! It will take years at the current committed roll-off rate to cut that balance even in half. The argument on the other side is that the Fed will back off early and reverse these actions. Only time will tell.
The standard disclaimer applies. No one, including this writer, can foretell the future. The reader must accept full responsibility for his own decisions.