Risk off. On one of the highest volume days in months (for equity cash and futures), ES (the S&P e-mini futures contract) fell over 20pts from high to low following Bernanke's lack of expansionary comment. Right at the close we accelerated very fast losing around 6pts almost instantly as the market had a very jittery feel. The major financials were off 2.5-3% from the 10amET Bernanke speech release (and XLF was down 1.4% from that peak) but it was the precious metals that shocked. Gold had it largest percentage drop (over 5%) since early December 2008 (around $100) and Silver plunged over 7% at its worst, managing to come back a little to close down around 6%. Oil did not follow the Central-Plan (to talk down the print-fest) as WTI pushed back up to $107 and Brent over $123 as the USD rallied aggressively - now up over 0.5% on the week. Treasuries early dislike for the removal of the punchbowl was quickly dismissed as equities sold off this afternoon and we drifted back 1-2bps from high yields of the day (though still higher yields close to close). As we noted two days ago on Twitter [7], the market seems only capable of reacting to addition or removal of central bank liquidity and what was perhaps odd today was the delayed reaction - one of incredulity maybe at the gall of these printers to stop/pause.
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In the last minute of the day session (between the white vertical bars on the chart), ES accelerated to the downside very fast, taking out the entire stack and had a very flashy reminiscence to it.
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While markets never perfectly repeat, they do seem to echo and the rectangles in the chart below are of equal period and size move (click for more clarity) - perhaps we now know just how far the Central Banks can push things before unintended consequences begin to get out of control...
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The Dow crossed 13,000 17 times today and closed back below that illustrious level but it was the underperformance of financials post Bernanke that was most notable (MS & BofA -2.8%, and GS -2.3%)...
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Credit continued its up-in-quality rotation that we had warned about with IG outperforming while HY and ES synced up (higher beta) and sold off. HYG though also outperformed, but it looks like some final convergence clean-up against HY (or perhaps just retail rotation from risky stocks into the safety of high-yield bonds </sarcasm>)...
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But gold dropped over 5% completing its worst day since early December 2008...
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Gold is trading back to late January levels while Silver is only back to last week's levels - though the vol was very very violent today. As is clear from the chart below, Oil did not follow the plan...
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The USD strength today was indeed impressive (up around 1% from its early morning lows) as EURUSD is now down almost 1% on the week.
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Charts: Bloomberg
Bonus Chart: YTD performance for the S&P 500 matches the 1997 performance through February and from the chart below, we can see what happened next...
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