The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Tension
S&P futures traded higher in our premarket and yields rose 1-2 bips. These two markets we’re kicking off the day in different directions. Crude was down small, so perhaps that influenced stocks. Over the day, yields kept rising, resulting in a 5-7 bip increase across the curve. Curiously, the S&P rose further into midday. The index gave back a good chunk of those gains in the afternoon, but still finished up about 30 points, with the Mag 7 and AI stocks leading the way. Even though stocks and bonds ultimately diverged, each market traded calmly throughout.
For a quiet news and trading day, the contrast between stocks and bonds is stark. Yields are climbing again yet so are stocks. For the moment, the stock market turned its attention away from the yield curve. This certainly cannot persist if yields make new highs again, but for today, stocks are not worried about a bit of a yield retracement.
How much retracement can the stock market handle? When does the yield/stock stress become evident again? From Friday, it’s a curious turn in stock market concern. Investors made an abrupt adjustment to their rate sensitivity over the weekend. Will the next swing be abrupt or have a clear cause?
Always more questions than answers. Perhaps stock investors are simply anticipating earnings season positively. 76 S&P 500 constituents report their results this week. If those results are fantastic, it would go a long way towards minimizing the influence of the yield curve and explain why stocks are looking through the latest rise in yields.
See you tomorrow.
-Mike
Visdom Market Commentary
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