Tug of War Galore

ARKK, small caps, and bios are all green this morning in the face of the senior indices red and a general broad market gap down off a hot CPI print earlier. 

With rates on the 10-Year Note pushing above the 2% threshold as I write this and TLT not bouncing much off session lows, the tug of war is now rather pronounced as bond bears face off against bottom-fishing growth stock bulls who have decided that enough is enough in terms of the prior selling. 

The near-term test as to who wins this battle is how growth stocks/small caps closeout today and then this week tomorrow, of course. 

But, beyond that, the critical issue as we move through February with a ton of time before next month's FOMC is whether rates begin to spiral out of control higher in such a shock-and-awe manner that it puts a Fed in the unenviable spot (although, let''s be honest, they put themselves in this corner to begin with) of needing to actually move in such an aggressive manner as to try and surprise markets with an ambitious rate hike to slow down inflation. 

We have heard rumblings, even from Fed heads, about a 50 basis point rate hike coming as soon as March, perhaps. But what about 75 basis points in one fell swoop? I suspect that may not be as far fetched as you would think. And, at some point, even 100 basis points in one fell swoop, coupled with Sunday night surprise rate hikes out of nowhere. 

So, why am I even talking about these scenarios?

Answer: The TLT monthly chart, below, which is essentiallhy just the inverse of the TNX mothy. TLT has a bearish head and shoulders top after a multi-year uptrend, as you can see--As this chart, below, goes down rates go up. Should this pattern actually break down hard, as I think the risk is, you will see a quick lurch higher in rates on the 10-Year towards 3%, causing dislocation in models across Wall Street and putting The Fed in the worst spot imaginable of trying to catch-up to an inflation problem they procrastinated on worse than a college freshman's homework while rushing a fraternity.