Dear Reader,
This is Dylan Jovine with Behind the Markets.
Happy Tuesday. Today is Tuesday, June 9th.
It is great to be back with you.
While I was gone, the markets sold off — which is very, very normal.
But I want to go a little deeper today so you begin to understand the cause and effect of why that happens.
When I was young on Wall Street, the people who understood the most had the least anxiety.
They saw how the game was moving.
The people who understood the least ran around like chickens with their heads cut off, logging into the Quotron machine every five minutes, biting their fingernails.
That made a big impression on me.
I wanted to be like the people who kept their cool under pressure.
And I realized that comes with understanding.
So here are six things I want to walk you through today.
Number One: Sell-Offs Like This Are Normal
I'd actually be more concerned if there wasn't one.
The market was getting to a point where I thought, this is becoming outrageous.
These chip stocks were becoming comical.
History also teaches us that sell-offs like this are rarely the top of a rally.
So completely normal, and frankly, thank goodness.
Number Two: Inflation Is Back
The CPI number came in at 3.8% — the highest level since May of 2023.
That means every dollar you have can buy about 96 cents worth of stuff.
Those are Biden-era level numbers.
People feel that in their bones.
They can buy less, do less, go to fewer movies.
Consumers are getting hammered, and that is serious.
Number Three: Hot Inflation Sends the 10-Year Yield Higher
When inflation comes in hot, bond buyers say: I need to be paid more.
If you're lending money for ten years and inflation is running at 3.8%, a 4% return isn't enough incentive.
So yields rise.
The sellers of 10-year bonds have to offer more to attract buyers, period.
Number Four: That Puts Pressure on the Fed to Raise Rates
The Fed's job is to stop inflation before it gets out of control.
And inflation has killed more empires than anything else.
I remember studying the French Revolution and realizing — it was inflation that lit the fuse.
Rome too.
People get angry when they can't afford things.
A man who can't take his family to the movies will eventually get mad enough to do something about it.
So Kevin Warsh now has real pressure on him to raise rates to tamp down that 3.8% number.
And remember — at the beginning of this year, the entire market was pricing in rate cuts.
If Warsh lowers rates instead, that spurs more economic activity and more inflation.
You think 3.8% is a problem?
Wait until you see 4.8%.
So he's in a genuinely difficult spot.
Number Five: Higher Rates Send Stocks Down
This is the seesaw relationship we've talked about many times.
The 10-year yield is gravity on the stock market.
Yield goes up, stocks go down.
Yield goes down, stocks go up.
And based on what we've seen in recent years, 5% on the 10-year seems to be where the market hits a real ceiling.
That's just the precedent.
So the chain looks like this: hot CPI → 10-year goes higher → pressure on the Fed to hike → stocks go down.
Number Six: SpaceX Is Creating a Wave
This is the bonus reason, and it's very specific to this week.
Every fund manager who wants to own SpaceX — and the IPO is this Friday, June 12th — has to make room for it in their portfolio.
If you're fully invested and you want to add a position, you have to sell something first.
And the first thing a rational money manager does in a market like this is sell the silly things.
Companies that may be great businesses but are trading at silly, silly prices.
So you're seeing some of those positions get unwound right now.
Remember something.
The question is never whether a company is great or not.
The question is what it's worth.
Every company has an intrinsic range of value based on its future cash flows discounted back to today's dollars.
And a whole bunch of companies right now are trading well above that range.
The dopamine of a bull market lowers IQ points.
Everybody gets a little drunk.
And I hate to give the “drive safely” warning — but don't drink and drive.
Not with your retirement account.
You've got to be your own doctor here.
We can provide guidance, but at the end of the day, it's your retirement that you're trying to grow and protect.
Anyway, that's all I have.
Have a wonderful Tuesday.
I will see you tomorrow.
“The Buck Stops Here,”
Found this helpful? Share it with others.
Written by Dylan Jovine