If we told you the 10-yr note yield is higher this morning and that the equity futures are lower, would you be surprised? We didn’t think so given the correlation between rising rates and falling stock prices that was rekindled in September.
Well, that rekindling is sparking some more fires this morning. The 10-yr note yield is up four basis points to 4.72% after flirting with 4.75% earlier, and the equity futures are all lower.
Currently, the S&P 500 futures are down 29 points and are trading 0.7% below fair value, the Nasdaq 100 futures are down 131 points and are trading 0.8% below fair value, and the Dow Jones Industrial Average futures are down 167 points and are trading 0.5% below fair value.
There hasn’t been a specific news driver to account for the bump in yields, yet that is the very reason why the bump in yields has created some added angst for investors. It has given rise to various theories — none of which sound good — as to why Treasury yields are moving higher.
One of the more concerning theories involves deficit concerns and attendant supply issues to fund the growing deficit in the face of softening demand. Other theories note the possibility of selling by foreign holders looking to reinvest in domestic markets, selling by foreign central banks as part of an effort to prop up weaker currencies, or simply a momentum trade. There is also “QT,” which isn’t so much a theory as it is a fact.
In any case, the stock market is finding it difficult to regain any rebound footing with the Treasury market continuing to get tripped up by selling interest.
Granted the market-cap weighted S&P 500 ended yesterday flat, but the equal-weighted S&P 500 declined 1.1% as the 10-yr note yield climbed 11 basis points to 4.68%.
We will see what today brings, but for now, the disposition of the futures market suggests the open will bring more selling interest.
One level everyone is watching is 4202. That is the 200-day moving average for the S&P 500. We are not suggesting the market will head there off the open, only that it is a level that has cachet as an inflection point for this consolidation phase. A break below the 200-day on a closing basis could invite a deeper correction or, alternatively, if support holds, it could serve as the springboard for a stronger rebound effort.
The technical gravitas the 200-day moving average holds is why it resonates as a focal point for market participants.
Other focal points of interest today include the start of FTX founder Sam Bankman-Fried’s criminal trial, Rep. Matt Gaetz (R-FL) filing a motion to remove Kevin McCarthy (R-CA) from his position as Speaker of the House, the Reserve Bank of Australia leaving its cash rate unchanged at 4.10%, Cleveland Fed President Mester (non-FOMC voter) saying one more rate hike this year might be needed, according to Bloomberg, and the August JOLTS – Job Openings Report at 10:00 a.m. ET.
Ultimately, though, the behavior of the Treasury market will be the stock market’s primary point of interest.
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Originally Posted October 3, 2023 – Stocks eyeing Treasuries closely
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