Much has transpired in the macro world in the last five weeks ago, most notably the January 5 Fed Minutes that realigned investor perceptions of the Fed’s concern about inflationary pressures.
The report was followed by the FOMC Policy Statement on January 26 that further reset investor expectations that Powell and Company intended to end Quantitative Easing by the end of March and begin a series of 25 bps interest rate hikes at its mid-March FOMC Meeting.
Along the way, supporting a restrictive shift in monetary policy have been data points that have reinforced strong economic growth, upward pressure on hobs and wages, relatively strong earnings (notwithstanding the Meta Platforms (NASDAQ:FB) debacle), and perhaps, most alarmingly, the persistent climb in oil prices that hit $93/bbl this past Friday.
The visual representation of investor attitudinal readjustment to a changing, i.e., less friendly interest rate environment, is shown on our 4-hour iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) chart.
This chart reveals an inability of any rally efforts in TLT to chew through a heavy, multi-month resistance plateau lodged from 143.50 to 144.50 prior to breaking down in a major way last Friday in reaction to a surprisingly strong January Employment Report that restricts Fed options heading towards the consequential March FOMC Meeting.
In a word, the TLT setup is ugly. In the absence of a substantial and powerful opposing force, both technical and fundamental headwinds are positioned to intensify, sending TLT considerably lower (longer-term rates higher) in the weeks ahead.
On January 10 we alerted MPTrader members to a potential breakdown in TLT, since which time the bond ETF has declined from 141.73 to 139.50, or 1.6%, and has provided a partial hedge for members' equity portfolios during an especially volatile four weeks.
Uncertainty will continue. As fate would have it, the next macro data point of intense interest arrives on Thursday in the form of January CPI.
Lack of any moderation in either the month-over-month or especially the year-over-year 7%+ trajectory of consumer prices will heighten trepidation about forthcoming multiple 25 basis point rate hikes and possibly a downpayment March hike of 50 basis points.