We saw a 4-day losing streak snap after yet another Monday rally. That's 12 positive Mondays in a row and counting, but another trend is that volume on these positive days has been lackluster suggesting that larger institutions are not doing the buying. Also, Tuesday through Friday has not been a picnic for the stock market lately. Yields and the dollar (UUP) continue to race higher, both making new highs for the year and the 10-year yield is now at a level not seen since 2007. Oil was down slightly, so it wasn't a factor, but it is also remains near 2023 highs.
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I know it's boring, but we have to start with yields. Yes, stocks were up modestly yesterday, but it was no thanks to the bond market as bonds tanked on another move higher in yields. (Bond prices and yields move counter to each other.)
The 10-year Treasury Yield made a new high and that's the highest closing yield for the 10-year since George W. Bush was president.
The steepening of the yield curve between the 2-year Treasury (5.12%) and the 10-year (4.54%) sounds better than the curve getting more inverted, but as we have talked about here before, it's the unwinding of the inverted yield curve that tends to be when the stock market starts to struggle since historically it has indicated a weakening of the economy. An inverted yield curve is when shorter term bonds are paying higher yields than longer term bonds.
Maybe it's different this time since it was inflation that caused much of the jump in yields, and we hadn't had inflation like we saw in 2022 in since the 1970's and 80's.
The dollar has also been a headwind for stocks and here it is making another new high.
Rapidly rising oil prices, also near 2023 highs at 89.68, is another issue. It may or may not have peaked yet but we did see a negative reversal last Tuesday which, at 92.50, has been the high for the year so maybe we'll see some continued relief. There is a lot of support however, between 85 and 83, and if the dollar ever starts to weaken, oil may have some wind at its back.
Inflation may not be cooling as quickly as it was earlier in the year, causing the Fed to take a more hawkish stance. They will have to play a careful dance between getting too aggressive with inflation and rates and killing the economy. Higher yields right now may be masking a possible slowdown in the economy and the steepening of the yield curve may be hinting at that possibility.
Friday's PCE and Personal Spending reports is something the Fed watches carefully so it is the key economic report this week.
The S&P 500 (C-fund) saw its 12th straight positive Monday and once again volume was on the light side so it didn't show much conviction. We are seeing signs of this being quite oversold in the short term so a little bounce wouldn't be a surprise. The open gap looks like a possible target near 4400 but it will have to get back above the blue dashed support line that it fell through last week. Support, once broken, can often act as resistance.
DWCPF (S-fund) is just a little more broken than the large cap charts. That could be good or bad depending on your approach. If you're looking for a relief rally, the bounce could be relatively large compared to other indices, but this chart needs some work before breaking its current downtrend.
The EFA (I-fund) looked ripe for a bounce on the 200-day EMA but the recent strength in the dollar is holding this fund back, and the chart fell below that support yesterday, however it did manage to close above it by closing near its highs of the day.
BND (bonds / F-fund) was also a disappointment as yields are just testing the how far the rubber band can stretch before they pull back and give the F-fund some relief.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
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I know it's boring, but we have to start with yields. Yes, stocks were up modestly yesterday, but it was no thanks to the bond market as bonds tanked on another move higher in yields. (Bond prices and yields move counter to each other.)
The 10-year Treasury Yield made a new high and that's the highest closing yield for the 10-year since George W. Bush was president.
The steepening of the yield curve between the 2-year Treasury (5.12%) and the 10-year (4.54%) sounds better than the curve getting more inverted, but as we have talked about here before, it's the unwinding of the inverted yield curve that tends to be when the stock market starts to struggle since historically it has indicated a weakening of the economy. An inverted yield curve is when shorter term bonds are paying higher yields than longer term bonds.
Maybe it's different this time since it was inflation that caused much of the jump in yields, and we hadn't had inflation like we saw in 2022 in since the 1970's and 80's.
The dollar has also been a headwind for stocks and here it is making another new high.
Rapidly rising oil prices, also near 2023 highs at 89.68, is another issue. It may or may not have peaked yet but we did see a negative reversal last Tuesday which, at 92.50, has been the high for the year so maybe we'll see some continued relief. There is a lot of support however, between 85 and 83, and if the dollar ever starts to weaken, oil may have some wind at its back.
Inflation may not be cooling as quickly as it was earlier in the year, causing the Fed to take a more hawkish stance. They will have to play a careful dance between getting too aggressive with inflation and rates and killing the economy. Higher yields right now may be masking a possible slowdown in the economy and the steepening of the yield curve may be hinting at that possibility.
Friday's PCE and Personal Spending reports is something the Fed watches carefully so it is the key economic report this week.
The S&P 500 (C-fund) saw its 12th straight positive Monday and once again volume was on the light side so it didn't show much conviction. We are seeing signs of this being quite oversold in the short term so a little bounce wouldn't be a surprise. The open gap looks like a possible target near 4400 but it will have to get back above the blue dashed support line that it fell through last week. Support, once broken, can often act as resistance.
DWCPF (S-fund) is just a little more broken than the large cap charts. That could be good or bad depending on your approach. If you're looking for a relief rally, the bounce could be relatively large compared to other indices, but this chart needs some work before breaking its current downtrend.
The EFA (I-fund) looked ripe for a bounce on the 200-day EMA but the recent strength in the dollar is holding this fund back, and the chart fell below that support yesterday, however it did manage to close above it by closing near its highs of the day.
BND (bonds / F-fund) was also a disappointment as yields are just testing the how far the rubber band can stretch before they pull back and give the F-fund some relief.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php
For more info our other premium services, please go here... www.tsptalk.com/premiums.html
Posted daily at www.tsptalk.com/comments.php
The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.
