Everyone is out of their comfort zone. The self-proclaimed, most intelligent folks scramble just like everyone else. 

It's gotten to the point where it's unclear whose tail it is, but whoever it is, it's wagging and dragging the dog. Stock investors are frustrated, but the fact of the matter is this is still about the Federal Reserve, the economy, and the bond market.

There is a split within the Federal Open Market Committee (FOMC). Yesterday, we heard about a ‘Fed hawk’ and a ‘Fed dove.’  Meanwhile, bond yields continue to erupt.

"It will likely be appropriate" to further raise interest rates and keep them at a restrictive level "for some time." - Michelle Bowman, Federal Reserve Governor

Fed funds are “likely at or very near” a level of interest rates that is “sufficiently restrictive.” -Michael Barr, Federal Reserve Vice Chair for Supervision  

Jay Powell is in the “likely at or very near” camp.

The Circle of Life

There is a massive volume spike, as the ishares 20+ Year Treasury Bond ETF (TLT) drawdown is a reminiscence of the Great Wildebeest Migration, which sees millions of animals make the treacherous journey across a crocodile-filled Mara River.

Beyond the velocity of the selling and spike in volume, the fact that TLT peaked in 2020 comes into view.  Is this the market’s version of the circle of life?  Or is this just the beginning of a multi-decade bond selloff?

Money Supply Drying Up Too Fast?

The rate of decline in the M2 money supply has many convinced that recessions are imminent, and that’s why bond yields are surging. I do not have the answer. I think the M2 money supply plays a pivotal role.

The chance of a rate hike next month edged higher.

Market Ekes One Out

Growth sectors to the rescue, again as the safest havens continue to implode.

The S&P 500 held at the trendline – and needs to find a way to bounce from here.

Leadership

Upgrades played an essential role in the leadership board, particularly with mega-cap names that found some love.

Utilities (XLU) were crushed, as were solar-related names, and Consumer Staples (XLP) looked weak.

Only 12% of the S&P 500 shares are changing hands above their 50-day moving average.

October is for Turnarounds

Over the decades, 5% + pullbacks ended in October 33 times. That’s the script I expect this month. It won’t be ugly, but the urgency pendulum will swing back to the Fear of Missing Out (FOMO) as crucial resistance points are removed.

I love the action on the NASDAQ Composite. It can provide leadership.

Portfolio Approach

There are no sector weighting changes this morning in the Hotline Model Portfolio.

Today’s Session

The market is opening under pressure, and this is the ideal backdrop for those that are looking for an entry point.  The last hour of trading must start seeing buyers step up.  Those will be the smart money folks, and initially, they will buy in small amounts.

Meanwhile, focus on company fundamentals when you get the urge to throw in the towel on a good company with a cheap stock price.

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