Stock Market Rebounds But Faces Headwinds

broke its 10-day losing streak yesterday; however, the bad news is it only finished the day up 0.04%. So, while the streak was broken, it was just barely.ended the day essentially flat. It was up about 70 to 80 basis points earlier in the day, but those gains evaporated as the day progressed.didn’t fare well either, closing about 50 basis points lower and, more importantly, breaking below support at 21,160—a significant level.the prior month. These flows generally start around 2 PM.

Despite the market being higher earlier in the day, it fell apart toward the close, even with the QYLD ETF buying back its December 21st option at the 20,475 strike. This should have been more bullish, given the delta notional value of nearly $10 billion. The fact that the market still finished down suggests significant selling pressure throughout the afternoon. Yoday, the QYLD ETF will sell an option in the Nasdaq index for January’s OpEx, which may create downward pressure due to market makers’ hedging-related flow. This could weigh on the market, particularly in the morning when these actions occur. Yesterday’s price action wasn’t encouraging, with the S&P 500 appearing to close near a key support level at 4,875, which could lead to a gap fill at 4,780 or even as low as 4,690.The PCE report today will be critical. While the Fed has indicated its estimate of 0.2% core inflation aligns with analyst expectations, the average market estimate is closer to 0.17%. A result above 0.2% could surprise the market and further pressure rates, which rose again yesterday.Yesterday’s five-year TIPS auction was notably weak, with a bid-to-cover ratio of 2.1, down from the previous 2.4, and an indirect participation rate of just 51.4%—the lowest since 2013. This pushed real yields higher, with theRising real yields, if they outpace nominal rates, can suppress breakeven inflation expectations, as observed yesterday with the two-year swap falling two basis points to 2.52%

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