Mid-Day Market Update

by Michael Reinking, CFA - Sr. Market Strategist

June 14, 2021 2:15 PM ET
DOW 34,220 (-258), S&P 500 4,235 (-11), Russell 2000 2,324 (-11), NYSE FANG+ 6,820 (+82), ICE Brent Crude $72.89 /barrel (+$0.81), Gold $1,865/oz (-14), Bitcoin ~40.2k (+2.8k)
  • Mixed markets with positioning pain continuing
  • Waiting on the Fed
  • 10yr yield higher by 4bps to 1.5%
  • 8 of 11 sectors lower: Tech outperforms, Cyclicals under pressure
  • Check out the new Inside the ICE House Episode 240, Zoetis CEO Kristin Peck on How Animal Health Drives Global Prosperity
MAC Desk Commentary:
Markets have started the week off on a mixed note with the acceleration of the themes that started to evolve last week. It is probably fair to view this week in two-parts, pre-Fed announcement on Wednesday and post-Fed. As a reminder the week will be capped off by a quad witch expiration cycle and the S&P quarterly rebalance so expect volumes to surge. We’re seeing a continuation of the recent outperformance by growth/tech beneath the surface which seems to have caught many investors wrong footed (IVW +0.4%, IVE -0.9%). As we head to print the S&P 500 is down 11pts to 4,236 (-0.3%), the Dow is down 250pts to 34,245 (-0.7%) while the Russell 2k is down 11pts to 2,324 (-0.4%). The most interesting thing about the action is that the growth factor is rallying despite rates reversing some of last week’s move with the 10yr up 4bps to 1.50%. There continues to be some technical deterioration within the cyclical/reflation basket. Materials are leading to the downside of 1.6% followed by financials down 1.2% and industrials down 0.9%.
Not surprisingly the big topic of conversation on everyone’s mind is the Fed  messaging on Wednesday. Rates and the pace of asset purchases will remain unchanged with potentially a bump in the administered rates in response to the record demand in the RRP market. Most don’t expect a major shift in the statement but this month the Summary of Economic Projections will be released. This could be where some of the controversy lies. The focus will be on the inflation projections and of course the DOTS. In March there were 4 of 18 Fed officials who expected to see a rate increase in 2022, while 7 officials expected to see an increase in 2023. There is a good chance the median 2023 DOT signals the Fed’s first rate increase, up from 2024 previously. This alone shouldn’t spook markets as Eurodollar futures are already pricing this in, but if we start to see a bigger jump in 2022 that could cause some angst. The press conference as always will be a focal point. Chairman Powell will be pressed about the taper with most now expecting him to acknowledge that this will be a topic of discussion at the upcoming meetings. Inflation will be the other big topic. This morning the NY FED released the May Survey of Consumer Expectations which showed a jump in 1/3yr inflation expectations to 4%/3.6% from 3.4%/3.1% in April which was in contrast to the surprising fall in inflation expectations in Friday’s U of Mich survey. Clearly the market is buying the “transitory” story for the moment but given the rise in recent data he will be pressed to quantify what would cause the Fed to change course. Speaking of…..there has been a lot of focus on the CNBC interview with famed macro investor Paul Tudor Jones earlier. He deemed this the most important meeting of Fed Chairman Powell’s tenure and said if the Fed didn’t change it’s stance on inflation (which seems unlikely) that this would be the all clear sign to increase any inflation hedges and laid out a call for a significant rally in commodity markets.  
Quickly looking ahead to tomorrow while markets wait for the Fed there will be quite of bit of economic data to chew on. In the US PPI, retail sales, capacity utilization, industrial production, Empire manufacturing (June), business inventories and the NAHB housing market index are on the calendar. There will be a $24B 20yr auction and potentially some focus on the TIC flows given the recent move in rates/USD.  
Other Asset Classes:
  • Government Yields -
    • US - 2yr +1bp to 0.161%, 5yr +4bps to 0.787%, 10yr +4bps to 1.501%, 30yr +4bps at 2.19%
  • USD index: -$0.07 at $90.49
  • Oil prices: ICE Brent +0.2% at $72.69, WTI +0.9% to $70.91
  • Gold: -1.1% at $1,877.80; Silver -0.1% at $27.92, Copper +1.1% to $4.54
  • VIX: +1.31 at 16.96
  • Bitcoin +7.9%  to ~40.3k
Central Banks/Stimulus/Taxes:
  • Bloomberg survey of economist shows that 1/3 of respondents expect the official taper announcement to come at the September meeting with all but 2% calling for that announcement to come after that (Dec. 33%). More than half of respondents expect the Median 2023 dot to signal at least one rate increase - Bloomberg
  • Bloomberg highlights that the drop in yields which suggests the market is buying the Fed’s transitory inflation view - Bloomberg  
  • Paul Tudor Jones was on CNBC earlier saying that if the Fed treats the inflation data with nonchalance it is a green light to go all in on inflation trade
  • McConnell looking to split the Democratic party signaling an openness to a smaller package which will either pass or be blown up by “progressives” - The Hill
  • Republican Senator Collins says the Problem Solvers proposal will not include a gas tax - Politico
  • ECB’s Lagarde says economy is on right path but it is too early to discuss removing  support - Reuters
Other news:
  • There are a lot of headlines coming from the G7 but they are not having much of an impact on markets, The group continues to support fiscal stimulus and unveiled infrastructure framework called  Build Back Better World (without much in the way of details). - Statement, Bloomberg, WSJ
  • Freight costs are surging which adds to inflation concerns as these additional costs may ultimately need to be passed on - Bloomberg
  • WSJ highlights quit rates are hitting levels not seen in decades
  • Mixed headlines about the progress being made in Iran/US nuclear talks - Bloomberg
Index Today YTD
S&P 500 -0.3% 12.8%
Dow -0.8% 11.8%
Russell 2K -0.3% 17.8%
Sectors Today YTD
S&P 500 / Information Technology -SEC 0.5% 9.2%
S&P 500 / Communication Services -SEC 0.3% 17.9%
S&P 500 / Real Estate - SEC 0.1% 24.6%
S&P 500 / Utilities -SEC -0.2% 4.4%
S&P 500 / Consumer Discretionary -SEC -0.3% 6.3%
S&P 500 / Health Care -SEC -0.4% 8.9%
S&P 500 / Consumer Staples -SEC -0.7% 3.7%
S&P 500 / Industrials -SEC -1.0% 15.3%
S&P 500 / Energy -SEC -1.0% 43.1%
S&P 500 / Financials -SEC -1.3% 25.2%
S&P 500 / Materials -SEC -1.8% 16.3%
AVERAGE -0.5% 15.9%

Economic Data:
  • US
    • None
  • Global
    • China Foreign Direct Investment: 35.4% prior 38.6%
    • Japan industrial production (final): 2.9% prior 2.5%
    • Eurozone industrial production: 0.8% vs. 0.4% cons., prior 0.4%
Market stat time…Volume is above average for this time of day.  Breadth is mixed across the board. Advancing issue: 1331 / Declining issues 1994: - for a ratio of 0.7 to 1.  New 52-Week Highs: 257 / New 52-Week Lows: 11. Let us know what you’re thinking! Send us a note here!
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