Is the Sell-Off Over? Making Sense of a Market in Flux

TL;DR

The sell-off may have paused, but the market’s two-day rebound does not settle whether volatility is over. The Russell 2000 closed at 2,233, up 39.63 points or 1.81%, while Chipotle rose 11% and Netflix fell 4% after their earnings reports. Peter Boockvar argues that inflation, interest rates, and central-bank responses remain more important than short-term Delta concerns. Read on for the evidence shaping that view.

Transcript

welcome to the real vision daily briefing it's wednesday july 21st 2021 i'm ash bennington joined today by jack farley and our guest peter bookfar welcome gentlemen here's what we're looking at uh the story of the day that i've got my eye on is the rebound continuing uh looks like equity index is up across the board big winner on the day once again... Read More

Key Insights

• 🥳 The bond market is seeing a rise in yields for the second consecutive day, potentially indicating a fall in prices.
• 🌐 Inflation is a global phenomenon, with varying effects at the consumer level in different countries.
• 🥺 The housing market is experiencing significant price increases, leading to concerns about affordability and impacting consumer sentiment.
• 🖐️ The Federal Reserve's stance on tapering and inflation will play a significant role in the direction of the bond market.
• 💱 The crypto market, particularly Ethereum, is undergoing significant changes, including EIP 1559 and the transition to Ethereum 2.0.
• 🏅 Gold's relationship with inflation is complex, and historical patterns show that gold may not always act as a reliable hedge against inflation.
• ☠️ The reverse repo market is a mechanism used by the Federal Reserve to set a floor for the federal funds rate and prevent negative short-term rates.

Questions & Answers

Q: Is the market sell-off over?

The discussion does not conclude that the sell-off is definitively over. Equities rebounded for a second day, but Peter Boockvar described the markets as “bipolar” and confusing, with inflation, interest rates, and central-bank responses still determining the broader direction.

Q: How did the Russell 2000 perform during the rebound?

The Russell 2000 settled at 2,233, gaining 39.63 points. That represented a 1.81% rise for the day and made it the leading equity index mentioned in the briefing.

Q: Why did Chipotle stock rise 11%?

Chipotle surged 11% following strong digital sales. Its performance came as earnings overall continued to beat expectations at a strong pace.

Q: Why did Netflix stock fall 4%?

Netflix declined 4% because it failed to meet expectations for net income. Its earnings response contrasted sharply with Chipotle’s 11% gain.

Q: What happened to the 10-year Treasury yield?

The 10-year Treasury yield rose for a second consecutive day as bond prices fell. During the briefing, the yield was around 1.29%.

Q: Why does Peter Boockvar consider inflation the market’s main issue?

Boockvar argues that inflation, the direction of interest rates, and central-bank responses are more important than short-term concerns about the Delta variant. He expects Delta to cause an uneven and potentially disrupted back half of the year but believes markets will have to work through it.

Q: What evidence suggests inflation is a global phenomenon?

South Korea’s producer price index increased 6.4%, while Germany’s producer prices rose 1.3% month over month in June and reached a six-month annualized increase of 13.2%. Boockvar said wholesale inflation was global, although consumer-level effects varied across countries.

Q: Why could housing costs keep inflation elevated?

CoreLogic reported that single-family home rents were increasing about 6.5% year over year. Boockvar noted that housing represents roughly one-third of CPI, so rising rents could outweigh moderation in used-car prices.

Summary & Key Takeaways

• Equity indexes are seeing a rebound, with the Russell 2000 settling at 2233, up 1.81% on the day.

• Chipotle experiences a surge in digital sales, driving its stock price up by 11%.

• Netflix, however, disappoints investors with a 4% decline in stock price as it fails to meet earnings expectations.