The DOJ (Very Likely with a White House Nod) Ups the Ante on the Fed File and U.S. Markets Respond Negatively
DOJ subpoena on the Fed met with a “thumbs down” by investors, though gold and silver love the heightened risks.
Key Takeaways
Fed Subpoenas Put “Sell U.S.” Back on Tape: This bizarre DOJ move to serve the Fed with grand jury subpoenas has been met with a “Sell U.S.” session. U.S. equity futures are trading lower by between -0.7% and -1.0%; the 10-year T-note yield has moved up a further +3 basis points to 4.20% and is threatening a breakout from the recent range; and the DXY dollar index has reversed lower by some -35 pips to 98.8 in its worst start to a day in three weeks, having failed in this recent countertrend rally right at the 50-day moving average.
One-Sided Bond Views Raise Contrarian Flags: The widespread consensus view is on full display in Barron’s “Up & Down Wall Street” column titled 2025 Was Boffo for Bonds. Why a Repeat Is Unlikely in 2026. Every bond bear you can think of was quoted in this piece, with nary a dissenting opinion. The economy apparently has zero downside risk, inflation will be all the rage, and bonds are very clearly for losers. It is one-sided columns like this that have my contrarian antenna finely tuned.
Risk-On Tape Meets Risk-Free Pricing: Momentum, sentiment, and the technical picture are all constructive. Fully 74% of the S&P 500 stocks are now trading above their 50-day trendlines. The NYSE cumulative daily breadth chart shows breakout signs after increasing over the past two weeks, with winning stocks in the opening week of the year smashing losers by an impressive 3-to-1 margin. Only excessive valuations are the sore spot — with a negative equity risk premium, the investor community has decided that equities belong in the basket of risk-free assets.
