Friends
Stocks have been very much reacting to the bond market lately, and as rates have moved higher, stocks have moved lower. Yesterday afternoon and today we saw rates move back down slightly and that seemed to settle stocks a bit for the moment (although there was a bit of selling at the close today). What we have been seeing is an “un-inversion” if you will, of the yield curve meaning longer term rates have moved higher while short term rates have held steady. The bond market had been predicting recession for well over a year now and it appears that the bond market is throwing in the towel for the time being and acknowledging that the economy has remained somewhat resilient. That, the continuing quantitative tightening from the Fed, and the massive supply of funding needed by the Federal Government continues to put pressure on the bond market as a whole. Remember, from 1982 to 2022 we saw what was likely the greatest bull market in bonds ever. Also remember that rates fell from the middle teens down to zero percent over that time (heck they even went negative in Europe, but I digress), and also remember as rates fall the price of bonds rises -hence bull market. After a 40-year bull market in anything it wouldn’t be a stretch of the imagination to think that a secular bear market in bonds might be developing, as I mentioned at our lunch last week. Call me crazy.
As for today, by the close the Dow Jones Industrial Average was down 106 points to finish the day at 33,963. The S&P 500 was down 9 points to close at 4,320. The Nasdaq Composite Index was down 12 points to close at 13,211. Gold was up $5 to trade at $1,944 per ounce, while oil was up $.73 to trade at $90.36 per barrel WTI.
It’s been a rough spell for stocks, but we expected that given the seasonality, and the price action in the first half of the year. The bulls have to fight their way through the coming weeks and the coming earnings season if they hope to set up a year-end rally. The set up it there for the bulls if they can limit the near-term technical damage. The bears on the other hand have an opportunity to break something right now. We’ll see if they can do it.
Have a great weekend everyone.
