Stocks are set for a soft open as it reverses after hitting record highs this weekend, and bond yields continue to move higher on growing concerns about inflationary pressures.
JPMorgan (JPM) warned that the rally in bitcoin was 'unsustainable' unless volatility starts to slow. The theory is that volatility is a function of speculative activity, and speculative activity will prevent some institutions from feeling that they need exposure to the asset class.
The strong action in bitcoin has helped to fan the speculative action in small-cap stocks. The sentiment created by the run in bitcoin has spilled over to various sectors of the market, and that is having an impact this morning.
Another problem for equities is the continued rise in bond yields as the Covid vaccine is rolled out and hopes of a return to 'normal' continue to build. Economic growth is coming in hotter than expected, and there is also the great likelihood of a substantial stimulus bill that will raise the prospects for even more governmental borrowing.
Central banks continue to make very dovish remarks and are welcoming increased inflationary pressures, but the 20+ Year Treasury Bond Fund (TLT) is now at its lowest levels since February 2020.
The big picture worries are weighing on the indices this morning, but the most significant action in this market for quite a while has been a wave of liquidity flowing into hot small-cap sectors like SPACs, cannabis, gambling, etc. That has helped to keep sentiment positive even though groups like FATMAAN have been quite sluggish for a while.
I'll be watching to see how much interest the dip buyers may have and will be focusing on sector strength again. I expect to see bitcoin find support fairly fast, and there should continue to be some pockets of strong speculative action.
This is still a market for stock pickers, although bond yields are starting to have an impact on the big picture.