Happy Friday Eve! Crazy week in the markets, eh?
The S&P 500 ($SPX) closed down nicely Monday, fell another 1.8% Tuesday morning and then managed closed green, rallied extremely hard yesterday to near all-time highs and now we’re sitting well below yesterday’s lows. Lots of volatility for not much change. Oh, and GameStop is doing that thing again… +240% since Tuesday’s close.
What gives? Many are citing the epic move up in longer-term Treasury rates as the reason for the weakness in equities. Let’s take a look.
treasury rates
U.S. 10-Year Treasury Rate ($US10Y): This morning the rate reached our 1.46% target from my first post and is currently above there at 1.49% and climbing. The grey in the chart shows old lows in the rate from late 2020. Maybe it will serve as resistance here? Not looking great… 1.81% would be my next target if not.
Without getting into the weeds on valuation and economics, you should know that, all else equal, higher rates generally aren’t great for stocks — future cash flows they generate are worth less, borrowing rates may be higher and investors receive more for their money on bonds they buy (hardly at these levels).
U.S. 20+-Year Treasuries ($TLT): $TLT was also included in my first post. My only comment was, “Just yuck.” The price of bonds are inverse to their rates (e.g. higher US10Y rate, lower $TLT). That gruesome chart is below. Notice that we are now below the pandemic lows. Bond bulls better hope for a reversal, quick.
All in all, we are at interesting levels on both charts. A reversal in rates would likely be welcomed by both equity and bond bulls here.
the dollar
Another chart at interesting levels is the U.S Dollar ($DXY). It’s back near that key level we have mentioned constantly, $89.9. Can it break through this time and continue its downtrend? Or will rising rates keep a bid under it? Must watch chart here.
Here’s a closer look for the $DXY. Maybe it’s like this? A resolution downward below $89.9 makes sense but I’m keeping an open mind. We have our line in the sand.
That’s all I have for today. Hope you all have a great end of your week!
Cheers!
classsssic short squeeze
$TLT biggest one-day gain since last March