Stocks Suffer Longest Losing Streak In 10 Years, Long-Bond Battered As Fed-Cred Crumbles

Absolute chaos intraday in stocks this week… and for a brief period today, there was hope that things would ‘get back to even’ magically on the week… But all that hope evaporated after Kashkari’s comments (which briefly lifted stocks back to unch) faded into the ether and stocks pushed back towards the lows of the day and week (before a late buying panic)…

The machines worked extremely hard in the last few minutes of the day to try and get the S&P into the green for the week – anything to avoid “the worst losing streak since 2011”

As BofA’s Hartnett said: “Paralysis rather than panic best describes investor positioning.”

S&P 4131.9 was last week’s closing level…just a coincidence!

This is the S&P 500’s longest weekly losing streak since June 2011.

VIX was also chaotic this week…

Here’s why – equity market liquidity is near record lows…

“The mess we’re seeing in the market is about liquidity,” explained Mohamed El-Erian.

“I’m willing to put my neck out and say we have mostly priced in interest rate risk.

We haven’t priced liquidity risk, we haven’t priced credit risk, we haven’t priced market functioning risk.

We are still in the process of pricing it.

The days of abundant and predictable liquidity are gone.”

The market’s message to Powell’s ‘Soft Landing’ narrative this week…

All the majors made new cycle lows…

FANG stocks crashed almost 10% from the post-FOMC spike…

Source: Bloomberg

But while stocks looked ‘unch’ on the week, the bond market saw a dramatic change of tone with the long-end battered and short-end bid…

Source: Bloomberg

…massively steepening the yield curve…

Source: Bloomberg

The entire yield curve is above 3.00% from 3Y out…

Source: Bloomberg

‘Real’ yields surged on the week with 10Y real back above zero…

Source: Bloomberg

The dollar managed gains this week, pushing up against 20 year highs, amid some extreme swings around The Fed…

Source: Bloomberg

Crypto had another down week…

Source: Bloomberg

With Bitcoin leading the drop (back below $36k), as the correlation between the major crypto and the big tech stock index has reached basically ‘1’…

Source: Bloomberg

On the commodity side, things were mixed with crude surging once again (as Biden started buying and EU oil embargo threats were tossed around). On the other side, copper was the biggest loser, as fears over China’s economic growth continues…

Source: Bloomberg

Gold was unable to hold $1900…

NatGas had a wild ride this week, soaring to within a tick of $9 and plunging today…

Oil is back above Biden SPR levels…

And Retail gas prices are back above Biden SPR levels…

Source: Bloomberg

Finally, we give the last word back to Mohamed El-Erian, who warns that The Fed has a trust problem with financial markets and the nation over inflation.

“It has a credibility issue with the American people and that is why chair (Jerome) Powell chose to address the American people at the beginning of his press conference” on Wednesday, the chair of Gramercy Fund Management and former chief executive officer of Pimco, said on Bloomberg Television’s The Open on Friday. “It increasingly has a problem with the marketplace.”

El-Erian added that “it is essential that the Fed regain credibility. It will not do so until it does what the ECB did last week, tell us why the inflation forecasts were so wrong for so long and how to improve the inflation methodology.”

“You cannot come on TV and speak about all the uncertainties and then rule out a certain policy response — 75 basis points,” El-Erian said. “We don’t know enough about the path of inflation to rule out certain policy actions at this point.”

And if you need to visualize The Fed’s loss of credibility, here it is… Volatility across every asset-class is surging…

Source: Bloomberg

Get back to work Mr.Powell!