Friends
Today’s trading had a bit of a chicken and egg feel to it. First of all, we will acknowledge that overnight trading in Asian and European markets was extremely negative, and the mess that is Japan continues to send conflicting signals, but stocks for the past couple of weeks have been taking their cue from bonds. This morning the 10 year Treasury note’s yield rose to over 2.25% which once again might not seem like much, but the speed at which the move happened spooked the stock market. The market wants rates to rise only after confirmation that the economy is getting better. Traders don’t want to see rates rise, at least not too fast, before the economy confirms the move. So, naturally, stocks fell right from the open and before long the Dow was down 150 points. At that point, bonds began to rally (selloffs in stocks sends money towards bonds) and rates began to fall back a bit. When rates fell back, stocks began to rally and the Dow made it all the way back to positive territory, before we did it all over again late in the day. Are you dizzy yet?
By the close, the Dow Jones Industrial Average was down 116 points to finish the day at 15,122. The S&P 500 was down 16 points to close at 1626. Gold was down $7 to trade at $1378 per ounce, while oil was down $.52 to trade at $95.25 per barrel WTI. The S&P did hold above 1624, if you want a silver lining in today’s session.
The dilemma that traders are facing right now is that if this, indeed, is the beginning of the end of the bull market in bonds, then how is that going to affect stocks? Will money flow to stocks buoying the averages, or will the breakdown in bonds actually cause economic indigestion (slow the housing recovery) therefore weighing on stocks in general? Remember, we have always said we want rates to rise for the right reasons (improving economy) and not the wrong reasons (no one wants our debt anymore). Market participants are left to decide which is causing rates to rise and how to position accordingly. Never a dull moment.
Have a nice evening everyone.
