Anatomy of market dysfunction, in charts:

The S&P 500 has lost more than $6 trillion of market capitalization in the past four trading sessions. It has fallen 12%, the sharpest selloff since the pandemic: This normally would trigger a risk-off move that sends investors into traditional havens like gold, the dollar, and US Treasuries. But none of these has worked. 10-year Treasury yields are spiking at the fastest pace since 2022:

I'm trying to find one economist or Wall Street analyst who has anything other than negativity about the moment we're in. I can't. Neil Dutta of @RenMacLLC kicked it off yesterday with an email titled "Happy Obliteration Day." "It's surprising stocks are not down even more." Evercore ISI's Julian Emanuel: "Certainty Has Arrived With an Historic Sledgehammer." The overnight reaction "raises the odds of Stagflation as investors’ 'Base Case' in 2025 as well as Recession."

If an inverted yield curve still functions as a telltale sign of recession to come, then the idea of a "soft landing" or "no landing" is getting more & more fraught. The inversion in the benchmark 2-10s U.S. yield curve has plumbed to new depths following today's CPI print (1/4) Analysts are talking up "no landing" scenarios at a time when the global economy keeps defying gloom and showing more strength than expected. This was emphasized today by bank CEOs. BofA's Moynihan: “If you look at the consumer, they keep spending money." ft.com/content/7829af…

So far, Jay Powell appears to be successful in signaling the end of the Fed's monthly bond purchases without causing market disruptions. The main post-Fed signs of caution right now include some long-end yield-curve flattening, the gap between 7 & 10-year US yields in particular. There is a concern that the Fed will hike more aggressively than people previously expected and then be forced to cut rates again soon after that in the face of cooler growth. But there's still so much economic uncertainty, and Powell remains dovish despite some more hawkish dots

"Stock valuations are as cheap as ever relative to junk." A fascinating chart by Brian Reynolds of Reynolds Strategy, looking at the S&P 500 earnings yield as a percent of junk-bond yields. "To get to fair value while holding bond yields at this current level, the S&P 500 would have to be over 9000. To get to fair value while holding stocks at this price would mean that junk yields would have to surge from the current 3.86% to over 8%."

A fascinating thread on how income inequality can lead to lower rates, which disproportionately benefit the wealthy, leading to a vicious cycle. A note: my point wasn't that the Fed should tighten policy to fight inequality, but rather that it's worth considering as a side effect

https://twitter.com/AtifRMian/status/1430295675070205958

This is relevant as the Fed decides when to start paring its $120 billion of monthly bond purchases. It's one thing to fight a crisis, it's another to keep pumping huge amounts of cash into markets amid a strong labor-market recovery.

To be clear, inequality is a political question & not necessarily the Fed's job. But if the Fed is going to be discussing inequality and making it the subject of their conference, they should talk about their role in it. It may be a side impact from policies that are worthy (1/2)

https://twitter.com/pearkes/status/1430133906666397696

There is a tradeoff here - it's legitimate to say that it's worth it, but there should be a discussion around how long it's worth it & what the other ramifications could be. This is relevant as people discuss the usefulness of $120 billion of monthly bond purchases at this point

Stocks surge on positive vaccine news. “This is about the best the news could possibly be for the world and for the United States and for public health.” bloomberg.com/news/articles/… Treasury yields surge: