NASDAQ March/April/May 2022 bear market and its correlation with the oil price/10 YR yield.
A very slight reflation trade is on, probably more to do with algorithmic trading systems trading off U.S. Dollar selling and 10 yr yield fluctuations. The news that Hungary, a European Union member and also an ally with Putin won't agree to a Russian oil ban, please refer to this post that Russian sanctions are probably not as harsh as they could be.
Note the inversion trades between the U.S. Dollar, 10 YR and growth stocks such as the NASDAQ which rely heavy in a lower interest and a low USD for tech companies based in America to compete with overseas competitors. But of course keeping in mind, is to say that inflation is to be allowed to run its course, even in a mild interest rate environment, a small IT startup would close up the same week it begin business. Why? The company would price itself out of existence, without any profits coming in it would become an inflationary zombie. Inflation is a brutal beatdown for startups, let alone an individual trying to keep up with erosion of income. Can Central Banks play both sides of the coin in supporting and restricting an economy?
Chart 1: with the NASDAQ futures, 10 YR yield and Oil price. The vertical orange line indicating the date 07/March/2022 shows that the oil price was at $115, which should be considered the main driver of inflation, caused the index to shed 519 points.
Chart 2: with orange vertical line shows the 10 Yield reaching over 3% on the 05/May/2022 causing the NASDAQ to off, losing 673 points on the day. Interestingly the oil price and 10 YR yield move, on a good day, in tandem, yet with the 07/03/2022 sell off on the NASDAQ the yield had actually diverged from the oil price.
Nevertheless, as noted with Chart 3, the NASDAQ is looking quite battered as oil and rates are moving upward, despite the index bid in a bear market. Could it fall further?
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