Stocks Tumble: Fed Spooks Traders With Bubble Warning

Tyler Durden's picture

Was today the Yellen Fed's Irrational Exuberance moment?

It started off so well: the blistering ADP payrolls report, the highest in over two years (despite disappointing PMI and ISM reports), sent stocks soaring off the bat with the Dow jumping nearly 200 points higher, rising as high as 20,887, and the S&P knocking on the all time high 2,400 door again, and AMZN to new all tim highs, and making some wonder if the reflation trade had returned.

It was not meant to be, because while it took the market some time to digest the Fed's minutes, the FOMC delivered one of its loudest warnings to date that it was focusing not so much on inflation or employment, but was seeking to deflate what even "some members" of the FOMC agree is a stock bubble, warning that stock prices are "quite high", and warning that its forecasts face "downside risks" if "financial markets were to experience a significant correction."

From the Minutes:

"A few participants attributed the recent equity price appreciation to expectations for corporate tax cuts or to increased risk tolerance among investors rather than to expectations of stronger economic growth. Some participants viewed equity prices as quite high relative to standard valuation measures."

Then, more ominously, this:

... a number of participants remarked that recent and prospective changes in financial conditions posed upside risks to their economic projections, to the extent that financial developments provided greater stimulus to spending than currently anticipated, as well as downside risks to their economic projections if, for example, financial markets were to experience a significant correction.

It took algos a while to process what the Fed was really saying, which is why while the dollar briefly spiked to the day’s highs in kneejerk reaction to the minutes, it then surrendered all gains and then some after the minutes showed most officials backed a policy change that would begin shrinking the central bank’s balance sheet, as wellas warn explicitly about valuations. 

The weakness in the dollar meant that everyone's favorite market-influencing carry pair would likewise suffer, and after breaking out above 111, the USDJPY tumbled as low as 110.70 once again threatening the key 110 support level.

Of course, with both the dollar and USDJPY tumbling, it was gold's turn to shine and it did just that, surging virtually uninterrupted since its post-minutes kneejerk selloff.

Oil did not help, because after rising to multi-week highs this morning, WTI promptly tumbled after the DOE not only rejected yesterday's API draw report, but showed yet another record in commercial oil stocks coupled with the latest weekly increase in US crude production. The result: crude slumped back under $51, once again driving a dagger through the heart of the reflation trade.

Across the rates complex, if it was the Fed's intention to orchestrate a smooth selloff, it failed: having failed to selloff earlier in the day as RBC discussed, yields briefly spiked higher after the Minutes only to eventually grind to session lows.

As for stocks, with the most shorted universe soaring in early trading, dragging the Russell higher, this too was pummeled on all sides after the Fed's stark warning, prompting an accelerated liquidation of the most overvalued stock group, as shorts reasserted themselves.

Not even that poster child of the Fed's latest bubble, Amazon, could withstand the selling and after hitting all time highs in early trade, was aggressively sold off.

To be sure, the selloff could have been far worse if it wasn't for some aggressive buying programs, emanating perhaps from the NY Fed's arms-length market market Citadel, or some other central bank, which nonetheless was unable to prevent the day's substantial gains from becoming losses.

In fact, the sharp move lower, which wiped out more than 200 points from the DJIA, was the sharpest intraday reversal in 14 months. And yes, for those asking, the Dow Jones closed at the lows. We need to check but this may be the first time in many years the DJIA has done this Minutes day.

In short: today was a mess for the bulls, although it could have been much worse. However with the reflation trade now hobbled again, with Trump set to meet Xi perhaps unleashing another diplomatic fiasco, with payrolls looming - and after today's ADP number, Friday can only disappoint - there is a slew of downside risks on the immediate horizon, coming at a time when the Fed itself is warning that the S&P is too damn high. And in this painfully illiquid market, all that it would take is for someone big to start selling.

Of course, everyone knows that the Fed will not let stocks drop too low before it re-engages the QE4 "jawbone" machine. The only question is "how low is too low"...

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pickatheweek's picture

Hah! What a shit show! Markets? A total joke.

J S Bach's picture

Down .2% is a "tumble".  I suppose Up .2% would be "soaring".

booboo's picture

wilted like a teenage dick when your girlfriends Mom burst through the bedroom door with pizza rolls.

btn's picture

No, down anything is a tumble, -1% is a crash. 

Up for the umpteenth time every time the words "tax reform" are mentioned, nothing to look at.

yogibear's picture

The Fed and dep state is messing with Trump.

Joyo Bliss's picture

Like, er, Edward Scissorhands?

jamesmmu's picture
VIX Touching Its Historic Low Levels; What’s The Calmness In The Fear Gauge Telling Us

AlexCharting's picture

Yellen's little gift to Trump. 

NugginFuts's picture

Boy, ain't that the truth? Halfway through reading the FOMC statement it dawned on me that the easiest way to predict what the Fed will do is to ask one simple question:

How can I screw up the plans and promises of Donald J. Trump?

How about jack up rates? How about dump toxic assets in the bond market? How about talk up the merits of ObamaCare and warn of the perils of immigration policy? 

It's seriously just that easy. What does Donald want? Now imagine ways to make that impossible. 

Lizardking's picture

No, this one was to save the bear hedgies from imploding even further. It's a short term life line from the fed.

yogibear's picture

Trump needs to start hitting the federal reserve hard.

chicken_goose's picture

Could see significant gap down tomorrow, interesting few days ahead.

NugginFuts's picture

I'd love that if true, but BTFD is algo gospel now. "Can't nobody hold us down!"

DavidC's picture

Yup and the indices have where they were yesterday!


Squid Viscous's picture

amazon was aggressively sold off, to end the day up $3... lol

TD the drama, of a drag queen

YesWeKahn's picture

Yellen, stupid POS. Cheerleading at all time high...

NugginFuts's picture

Well, that escalated quickly....

lester1's picture

AUY baby !!


Significantly undervalued gold mining stock !!

lester1's picture

AUY baby !!


Significantly undervalued gold mining stock !!

walküre's picture

give you a +1 for trying to pump gold stocks

problem is that valuations don't matter

gold miners aren't sexy.. as sexy as TSLA, AMZN or NVDA

My 12 y/o son talked about Nvidia this and Nvidia that over a year ago when he built a gaming computer. I started paying attention and bought the stock. Best yap yap my son ever gave me.

We Are The Priests's picture

Props to your son, but isn't there an axiom about where we're at in the business cycle when everday schlock's become stock picker's?

willy up the creek's picture

I know what you mean, and I see your point.  But, the word 'schlock'.  "I do not think it means what you think it means."  A much better choice might have been 'schlubs' - also spelled 'glubs', with the g sound like as in 'singe'.  Or, you can always use the good old 'shmo'.  Or, many others.  

Wild Swings's picture

I bought CHK at $5.03 because my Uber driver told me about it. Pretty funny but doesn't mean it's a bad trade :P

TheLastTrump's picture

give him a cut, teaches him that idea men make bank

TheLastTrump's picture

been watching due to your shilling :) didn't it bleed off quite a bit, then roar today?

barysenter's picture

I predict > 20% prime rate. Kill the Fed before its too late.

mily's picture

Nikkei below 50 SMA, I wonder what night brings...

<- Shit&Piss Limit down tomorrow 

<- BTFD 

We Are The Priests's picture

The contagion is contained to the global markets and will in no way impact Musk's, Bezos' and Branson's escape velocity to Mars.

Squid Viscous's picture

did you hear the one about the two crypto jews and a closet fag on the trip to mars...

it's a great one,

adr's picture

Yeah,  I hit a guy with a trident. 


Ben A Drill's picture

Cut EBT cards by 50% please. No moar free rides.

Cursive's picture

Can it really be a "bubble warning" when you are 8 years into it? And you're the one who has been pumping the bubble?

newmacroman's picture

What, no deer?

This was a headlight session if I ever did see one. And I lost a bet the pic would be posted.

TheLastTrump's picture

I read comments in a trading room, there were some shocked people.

btn's picture

Must be Obama's fault

BlueHorseShoeLovesDT's picture

Obama got Granny started with smoking things.

BlueHorseShoeLovesDT's picture

Granny's lungs must be giving out.

Jungle Jim's picture

How does this affect the gold price? Does it help gold?

TheLastTrump's picture

Well, what did it do today? My JNUG went straight up 10%. Seen better, but it's encouraging. :)


No tax cut = bad for the dollar = good for gold. Allegedly.

biker's picture
biker (not verified) Apr 5, 2017 3:46 PM

11:33am est Trump was speaking,
about war with Syria.

ArmaG3don's picture

It looks like this bearish snowball could really become a blizzard. And then suddenly QE4 and woohoo second big bull market.

RawPawg's picture

Planning to meet up with my Local Gun/Coin dealer before the weekend...was going to anyway

Gotta Love Timing,Huh?

We Are The Priests's picture

Only in America do guns and coins make for a good combo meal.  My local dealer just gave me a great deal on 1k rounds of 5.56mm for $0.31/round and some Silver Eagles for $2.25 over with no minimum.  The guy is a true patriot.

Victory_Garden's picture

Who. Farkin. Cares?

What good will all the material riches do any one, if there is no world left to enjoy them in?

Gall darn it. Is there anyone that actually believes they will be OK by slithering into a deep hole somewhere to hide from the purposely caused world woar??






Racer's picture

Frauderal Reserve must want to get bad stuff pinned on Trump, like a stock slump,

GETrDun's picture

I am Jack's complete lack of surprise.

TheLastTrump's picture

Two more raises, Republicans in seeming disarray, a formerly bubble friendly Fed now bubble frowny, trade questions, wars & rumors of, no reason for concern.


TVIX is still going to fuck you no matter what tho.