The primary market theme right now continues to be the destruction of rate sensitive assets as long-term Treasury yields keep moving higher. Momentum from the past several weeks carried forward into this week and was boosted again by another hotter than expected jobs report. The September beat was enough of a surprise, but the fact that it was combined with upward revisions in the past two months’ numbers suggests the labor market might actually be picking up steam instead of slowing down. Needless to say, that’s probably not going to help slow the uptrend in yields and may even put another rate hike back on the table over the next few months. Inflation is still gently cooling, which is what the Fed wants to see, but it also runs the risk of overtightening in order to squash it once and for all.
With Treasuries and utilities underperforming so badly recently, it’s opened the door for short-term risk-on behavior in large-caps, which is exactly what we’ve seen happen. The S&P 500 has been relatively flat over the past couple weeks, but tech has pulled the market higher again while long-term Treasuries continue to plunge. The longer-term signals still look pretty mixed though. Lumber/gold is still in neutral territory while the S&P 500 continues to trend down towards its 200-day moving average.
Keep reading with a 7-day free trial
Subscribe to The Lead-Lag Report to keep reading this post and get 7 days of free access to the full post archives.