The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Indecisive
Risk-off trades were in modest motion in the premarket and news was unremarkable. The S&P 500 opened down about 35 points and traded there until lunch. A news story suggesting negotiations between the US and Iran broke and the idea of a phased deal spread through markets. Crude dropped $2-3 immediately and the S&P jumped immediately. Upside momentum stalled in stocks shortly after the news and the index spent the rest of the day about flat. Treasury yields fell on the US/Iran news but resumed their climb in the afternoon. The back end of the curve climbed 5-9 bips on the day, a meaningful increase.
We haven’t learned much more since yesterday’s yield breakouts. It is interesting that the yields continue to climb. Perhaps technicals and momentum are of importance in Treasuries at the moment. There does not appear to be new data or news that suggests fundamental changes to the component premiums should be occurring. We still don’t know why yields are climbing to new, significant highs. We only observe that they are.
That the stock market trades seemingly unaffected by these climbing yields is another unanswered question. Dip-buying behavior in the index has been reinforced for decades now. Investors have learned to discount the news and the data and simply trust that dips will be good buying opportunities. Again, we don’t know why stocks are resilient, we only observe it.
So for today, we are left with two main observations and no conclusions. Yields continue climbing. Stocks are unconcerned.
These two markets are currently unreconciled. I wonder when they will agree. I wonder which will move further towards the other.
See you tomorrow.
-Mike
Visdom Market Commentary
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