Isn’t This Supposed To Be A Correction?

Stock market averages opened higher this morning following a couple of days characterized by caution. At the moment, the Dow is up 188 points and the S&P 500 is up .6%. All eleven major market sectors are in the green, led by technology (+1%). In recently days, the VIX fear gauge picked up to 19.7 suggesting a bit of edginess among traders. The months of August through October tend to be less productive to invest and everyone is expecting some type of correction. Certainly a re-rating of stock prices would be not only normal but also welcome in order to extend the rally over a longer period. But a correction of more than a few percentage points could be elusive because the vast majority of investors are looking eagerly for a good buying opportunity and will buy the dip. But back to today’s session.

The dollar is rallying as more and more investors are convinced that the Federal Reserve will soon announce a plan to taper its “quantitative easing” bond-buying program. Much is being made of dollar strength lately, and it has rallied since May, but the dollar is no stronger than it was a year ago. Copper is up nearly 2% today, trying to pick itself up off the floor. Slowing economic momentum in China is weighing on copper and some other commodities. WTI crude oil is hovering around $63/barrel. CNBC blames rising Covid-19 Delta variant cases for hitting global oil prices.

The bond market is broadly, if slightly, higher today and that is pushing bond yields a bit lower. Bloomberg’s Alyce Andres says rising Covid cases are causing overseas buyers to purchase US Treasuries. Longer term, one would think that the outlook for less monetary stimulus would cause yields to head higher but we haven’t seen that yet. The 10-year US Treasury Note yield is currently at 1.25%, about equal with where it was back in February.