When the Federal Reserve released its minutes Wednesday, there wasn’t anything readers of Fortune Research haven’t heard before.
The Fed governors said they will taper asset purchases… acknowledged inflation was high… and told us they were going to raise interest rates three times this year.
What was new was a date for the first hike…
March.
The broader market wisely concluded that March is pretty close to January. The response by the stock market to the Fed’s coming tapering was unwise to say the least…
It panicked, resulting in a violent sell-off where the S&P 500, Nasdaq and Russell 2000 all fell nearly a percent in the last 30 minutes of trading.
That sell-off coincided with a rip to nearly 1.73% in interest rates on the 10-year Treasury — higher than the cycle peak almost a year ago.
Source: Bloomberg
We know from backtesting that the 10-year interest rate rises along with inflation. But we also know that inflation is no longer rising anywhere near as fast as it was a year ago.
If you have a pair of functioning eyes, you can look at a chart of all commodity futures and see for yourself…
Source: Bloomberg
Mind you, nothing is collapsing.
The Fed Tapering and the Stock Market Freakout
But neither food… nor energy… nor base and industrial metals are continuing to move up and to the right.
That indicates Thursday’s rise in 10-year Treasury yield is over, and it will revert back to its recent range between 1.3% and 1.7%.
When yields fall on a relative basis, there’s one asset class that almost always moves in the opposite direction…
Source: Bloomberg
Not surprisingly, gold was on sale Thursday as the rip in yields pushed it down below $1,800-per-ounce level for the first time in a month.
Source: Bloomberg
And that means watchlist member SPDR Gold Shares (NYSEArca: GLD) is also this week’s BONUS TRADE on the heels of the Fed tapering and the stock market panicking.
Updated watchlist below…
Source: Bloomberg
All the best,
Matt Warder
Fortune Research
