The major indices managed to record some modest gains on Monday as the 10-yr note yield moved up to 4.55%. It kissed 4.56% in overnight action, but has been sliding most of the morning and currently sits at 4.49%. The curious thing is that the equity futures market is lower despite the dip in the 10-yr note yield.
Currently, the S&P 500 futures are down 23 points and are trading 0.5% below fair value, the Nasdaq 100 futures are down 81 points and are trading 0.5% below fair value, and the Dow Jones Industrial Average futures are down 155 points and are trading 0.4% below fair value.
That makes it challenging to figure out where the market’s head is at these days. We think it is locked on worries about rates staying higher for longer and that it is contemplating the impact of rates staying higher for longer on borrowers and consumers, which is to say it is contemplating a potential slowdown in growth.
But, today, it may just be thinking about fund flows. The price of the 10-yr note yield could be going up today (sending yields lower), because it has been going down most of the month. In other words, this morning’s price action could just be a case of a technical bounce from a short-term oversold condition.
That may be why there isn’t as much appreciation in the equity futures market this morning for the dip in rates since some see it only as a technical move rather than a fundamental move. Their fundamental vision has been clouded so to speak by JPMorgan Chase CEO Jamie Dimon telling the Times of India that he is not sure if the world is ready for 7%.
That wasn’t necessarily a forecast, only a warning of sorts in our estimation that it is something that should be thought about and prepared for in the event it comes to pass.
Separately, Minneapolis Fed President Kashkari (FOMC voter) said he thinks another rate hike would be likely before year end and that the Fed will need to stay higher for longer if the economy is stronger than expected, according to Bloomberg.
This thinking is in-line with the prevailing view at the Fed, so it isn’t a surprise; nonetheless, it is another reminder to the market that rates may not be done going up.
That is perhaps why there hasn’t been the same inclination to buy on weakness that has been seen in the not-so-distant past. Other factors seemingly weighing on the equity futures market include the softness in mega-cap stocks, reports that a unit of Chinese property developer Evergrande missed a bond payment, the specter of a government shutdown, and the ongoing UAW strike.
It is hard to say, but what it is easy to see is that the stock market has plenty on its mind that is getting in the way of a concerted rebound effort at the end of what has a history of being a weak month for the stock market.
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Originally Posted September 26, 2023 – Stock market has plenty on its mind
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