It was another rough outing for the stock market yesterday, but the curious interlocking of stocks and bonds continues to unravel. It’s like those movie scripts where people accidentally switch bodies or see their bodies change like in the movie “BIG.” Now, suddenly, stocks are plummeting, and bond yields are edging lower, sending bonds higher.

• S&P 500 (SPX) -1.44%
• Nasdaq Composite (IXIC) -2.00%
• Russell 2000 (RUT) -1.50%
• Dow Jones Industrial (DJI) -1.03%

Major indices are nicely off the lows, so a reversal down now would be heartbreaking.

Heat Map

Utilities (XLU) was the only sector higher yesterday, as Communication Services (XLC) once again led the way lower. Consumer Staples (XLP) , continue to hold up as a haven; although, it was down in the session.

The sector was hit on word of regulations or actions to be taken in Europe against Meta (META).  In addition, Consumer Discretionary (XLY) was weighed down by Amazon (AMZN), which continues to lose luster among Wall Street firms.

I have a special focus on Energy (XLE) as oil keeps pulling back in such a way that says recession is nigh.

It was greener on the screen than the Monday session, and buyers did materialize into the close, but it was a very discouraging session.

Speaking of Recession

Look how deep the 10-Year/2-Year bond inversion has become. But is this why banks are so shaky suddenly?

What’s Going on with Large Financial Institutions?

I get why so-called rypto banks have been slammed – but why are the large banks getting slammed, and is  Blackstone (BX) capping its redemption on yet another fund?

• Bank of America (BAC) -4.3%
• Goldman Sachs (GS) -2.3%
• Blackstone (BX) -4.0%

A week ago, Blackstone limited redemption in its $125 billion real estate fund. Yesterday, it did the same to its multi-billion fund (Private Credit), which hit its redemption limit.

Shares of BX has lurched into freefall, down on a huge increase on daily volume.  The shares closed at the low of the session yesterday.

Resolve at Stake

This bear market is often compared to 2000-2002 and 2007-2009. But those bear market rallies never displayed the kind of oomph seen this year. The only problem is the greater the resolve i, the greater the disappointment

Ten -Year Bond Yield Signal

According to the Treasury Department, the ten-year yield has NOT gotten below 5.00% - close, but not below. That may not be a magic elixir, but I think it is huge – I would like to see it happen and hold.  This will be a good sign for stocks.                                                   

Portfolio Approach

There are no sector weighting changes this morning to our Hotline Model Portfolio.

Today’s Session

Futures are off the worst levels but not the risk-reward.  The selling is overdone but questions remain. 

Comments

On the major banks. Correct me if I'm wrong. While they maintain a big footprint in the older retail customer banking scenario, profits from investment banking activities (some internal) have become an ever-increasing part of their revenue stream, that they sometime live or die from on earnings. Terry Dowler on 12/7/2022 9:40:47 AM

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