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Stocks Drop Sharply On February 25 As Rates Explode

By:

Portfolio Manager with Interactive Advisors, CEO of Mott Capital Management

STOCKS – TSM, AMZN, ZM, ROKU

MACRO – SPY

Stocks fell sharply on February 25 as rates across the curve rose very sharply. The S&P 500 fell roughly 2.5%, while the NASDAQ 100 Qs fell by almost 3.5%. Meanwhile, the 10-year Treasury rose to 1.52%, and 10-year Tips rose all the way to -60bps. That resulted in 10-year breakeven inflation rates dropping to 2.12%.

Look, we have been talking about rates rising since December when I wrote my 10 predictions for the year, with number 8 the 10-year, advancing to 1.5% in the first half of the year. Well, it is only February, and we are already there. The move is happening faster than I expected.  So at this point, it would not surprise me to see rates rise even further.

SPY 1

The Fed minutes and Powell’s commentary was what the equity market wanted to hear. Low rates for a long time. But Powell’s big mistake was that his low rate message and brushing off inflation rising was not what the bond market wanted to hear. The bond market was what Powell should be worried about because equities tend to take their cues from the bond market. So now rates are rising really fast, and Powell finds himself in a box. Keep the message the same, and bonds will continue to rise, and equities will continue to fall. Change the message and talk about containing inflation and moving sooner than previously mentioned, and equities will not be happy and continue to fall.

It really is a horrible place to live right now.

S&P 500 (SPY)

The S&P 500 closed below the November uptrend for the first time, and if it can’t rise above that trend line tomorrow, it will be a horrible sign. It will make 3,780 the next level of support that must hold, or the sell-off intensifies with a drop to 3,700.

SPY

Amazon (AMZN)

Amazon did not have a good day falling below support at $3,070. That makes the next level on the chart $2,870.

AMZN

Taiwan Semi (TSM)

Taiwan Semi will be one to watch; it broke a big uptrend today. It means its next support level comes $120.

TSM

Zoom (ZM)

Zoom is closing in on $340, and that is a huge level. That is where the company priced its 5.1 million share secondary. Markets have memories, and if that level breaks, that will likely bring out a lot of sellers, paving the way to probably $275.

ZM

Roku (ROKU)

Roku fell to support today at $385, and if that level doesn’t recover quickly, the next level is $318.

ROKU

Originally Posted on February 25, 2021 – Stocks Drop Sharply On February 25 As Rates Explode

Disclosure: Mott Capital Management

Mott Capital Management is the portfolio manager for one portfolio offered by Interactive Advisors. Interactive Advisors clients do not invest directly with the Portfolio Managers like Mott Capital Management, and the Managers do not have discretionary trading authority over Interactive Advisors client accounts. The Portfolio Managers on the Interactive Advisors platform simply license their trade data to Interactive Advisors, which then allows its clients to have the same strategy and trading decisions mirrored in their accounts if the Portfolio is in line with their risk score. Portfolio Managers like Mott Capital Management implement their trading philosophy and strategy without knowing the identity of Interactive Advisors’ clients or taking into account these clients’ individualized circumstances.

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