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Bostic’s Comments Trigger Buying Spree In U.S. Stock Market

U.S. stocks rallied big time on Friday, 3rd March 2023, with the S&P closing up 1.6% and the Nasdaq up almost 2%. The Dow closed up 1.2% while the S&P snapped a 3-week losing streak. 

This rally continued from Thursday after Atlanta Fed’s Bostic commented that he is in favour of no more than a 25 basis point hike at the next meeting, to be done by summer. 

The market ignored all other comments that may have been hawkish from other officials and just took off from Bostic’s comments.  

Data on Friday was in line with expectations, and even though some aspects may be bearish for markets, it was ignored by them due to FOMO and short covering.  

Bond yields, which have been climbing steeply in previous sessions, pull back from their highs. At one stage, 10s years was well above 4%. On Friday, it closed at 3.95% down 10 basis points. 

For the week, the S&P gained 1.9%, the Nasdaq 2.68%, and the Dow 1.75% 

Here are the closing levels on Friday, 3rd March 2023:

 Last Change  %Change 
Dow Jones 33,390.97   +387.40. +1.17 
S&P 500 4,045.64. +64.29. +1.61% 
Nasdaq Comp 11,689.01.   +226.03 +1.97% 
US 10Y 3.95%   
VIX 18.49 -1.10 -5.62% 

It is getting increasingly difficult to read the markets. There is just too much volatility out there. 

Just last week, we were staring at a potential meltdown when yields started to price in a higher terminal rate and a widening 2s 10s spread that is calling for a recession. 

It seems as though buyers and sellers are playing a game of who blinks first. Staring at each other until someone blinks.  

This time, the sellers blinked, and buyers took control of the markets.  

It also felt like buyers were just waiting for an excuse to buy, and the minute they found one, Bostic’s comments triggered a buying spree. It did not matter that Bostic is not a voting member. 

To add, it really does not matter what data comes out or which Fed official says what. When the buyers want to buy, there is little holding them back.  

I am not suggesting the data does not matter, but it will at some point.  

For now, it is the buyers who are willing to risk getting it wrong.  

Sellers will probably wait for the buying to stop, staying on the side-lines. It may be a long wait as the buyers seem to have more conviction than the sellers. 

Maybe the upcoming payroll or inflation data may change their minds…. maybe not. 

The VIX could be telling us something. It has not gone above 30 since the October lows. 

As I said before, a lower VIX means hedging is cheaper and is conducive for putting on risk.  

You either choose to follow the market i.e., fight the Fed, or follow the Fed. 

Right now, the latter is proving painful. 

Source: CBOE, Bloomberg. 

This commentary is written by James Gomes.
James has been in the finance industry for over 30 years and most recently worked for a large U.S. bank for more than 20 years.

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