Several news items today caused the market to behave like a bungee jumper. At the close the Dow was off 420 at 24,606. Trading volume was heavy.
The first news item was Fed chair Powell speaking to the Senate Banking Committee and noting that current data suggests that wage inflation is not at a point of acceleration. This cheered the market.
The second news item was President Trump indicated that next week the US will slap tariffs on imported steel and aluminum and while this sent metal stocks higher it caused everything else to sell off over fears of a potential trade war. How this shakes out depends on who you talk to but as one aluminum company CEO said “they are cracking open beer cans in Kentucky right now”. The market’s reaction to this news seems to be to take some money off the table, let the dust settle and then proceed from there.
Meanwhile BTS put out a research note indicating that the biggest risk factor is a quicker than expected rise in interest rates as measured by the 10 year Treasury yield. The treasury yield moved from 2.3% to 2.9% over the past couple of months before settling at the 2.8% range as stock market volatility is causing some to seek safety in bonds. If however the yield were to move quickly over 3% we could expect more volatility in stocks and bonds. T. Rowe Price has also noted that we are entering a period of volatility and with the economy doing well it might be prudent to have an increased cash balance at this juncture.
In the energy business its “shale vs sheik” as US oil production hit an all-time high in the latest reading and is offsetting production cutbacks by OPEC and Russia. US oil inventories are on the rise and WTI crude fell on the news to close at $61.11 per barrel off from a high of $65.50 from about a month ago. Steel, aluminum, energy and material stocks generally did well today in an ugly market.