The Russell 2000 rally was not some random event/Yen intervention/Earnings comments/China

The Russell 2000 big rally yesterday and selloff in the biggest names wasn't just a random event as the market got more comfortable with a September Fed rate cut (odds now up to exactly 100% from 76% in the day prior). Yes, the spread between the two groups got very extreme and some mean reversion was due but small and medium sized stocks that have floating rate debt, SOFR plus, have gotten very hurt from the sharp rise in interest rates in a condensed period of time. Speaking of one stock we own, their interest expense doubled in 18 months. Not that 2-3 rate cuts would move the needle too much for them, but it would take some of the edge off in terms of funding costs. Thus, it is no coincidence that the Russell 2000 peaked in early November 2021, just as the Fed was tapering QE and was approaching the fastest rate hike cycle in 40 years. 

Talking our book, I certainly hope a shift to value/small/mid has begun.

Russell 2000

3 month SOFR

So that huge yen rally yesterday just as the CPI print hit the tape and resulted in some narrowing of the yield spreads between Japan and the US, it looks like it got some extra help from the Japanese Ministry of Finance with FX intervention. Looking at the fall in BoJ's daily accounts points to it, of about $20 billion. And, according to Bloomberg News, "Local media reported that the authorities had stepped into the market citing unidentified officials." Quite interesting that Japan was all set to act right after the US CPI came out.