The current market sell-off is what I predicted for the last couple of months on the weekly Saturday Show. It has little to do with interest rates, bond yields, or the Federal Reserve. Notice I said “little to do” and not “nothing to do”. Let me explain.

Looking at price action today on the 10-year bond yield, you can see that the yield exploded higher this morning:

The surge higher was caused by the Job’s Report which showed job growth up 200,000 in January, with average hourly earnings jumping 2.9% in January from a year earlier.

What is happening is that traders are front running Federal Reserve rate hikes. It’s the “Front-Fed Trade” where because the economy is growing stronger with hourly earnings rising, that must mean at least 3 and maybe 4 Fed rate hikes coming by the end of 2018. Therefore, position now in front of the Fed’s rate hikes. You can see the Front-Fed Trade taking shape in the Profunds Rising Rates fund which is up 2% today.

But folks, it doesn’t change the fact that I predicted this January pullback months ago based on seasonality patterns. It’s the seasonality patterns that are responsible for most of the sell-off this week.

The DOW is not going to drop 600+ points because of bond yields. Bonds are never responsible for such big one-day moves in equity markets.

Long-term, I totally get the 10-year bond yield chart above and what is going on as sector rotation plays out; however, that has little to do with a one day plunge on the DOW.

The drop in markets this week is normal seasonal selling and until the S&P 500, Nasdaq, and DOW break below the 50 day moving averages, no technical damage has been done and the Buy the Dip trade is alive and well IMO.