10 Year Bond Yield - Everyone Was Wrong

10 Year Bond Yield - Stocks Reverse On Tuesday

Before getting into the 10 Year Bond Yield, let's review the stock market. Finally, after a huge spike in June, the market appears to have hit a wall early in the trading session on Tuesday. S&P 500 closed 0.8% below its morning high. Its morning peak was about 37 points below the record high. Maybe investors finally came to their senses about the economy or maybe this is a temporary stop on the road to a new record. I’m making the former prediction.

On Tuesday, S&P 500 fell 4 basis points, Nasdaq fell 1 basis point, and Russell 2000 fell 0.29%. VIX increased from 0.31% to 15.99. CNN fear and greed index fell 1 point to 36. 2 biggest losers were the utilities and the industrials which fell 0.69% and 0.9%. Utilities are down 2.02% in the past 3 days. This sector needs the 10-year yield to fall below 2% to get to a new record high. In the past 2 weeks, the 10-year yield has stabilized. 2 best sectors were consumer staples and consumer discretionary which rose 0.41% and 0.33%.

Big Potential Catalysts Friday & Next Wednesday

In terms of economic reports, Friday will be the biggest day of the week because industrial production and retail sales are released. If both are weak, we could see a big drop and if both are strong, we could see a record high. To be clear, the estimate for 1.7% Q1 GDP growth isn’t set in stone. 

If those reports are strong, estimates can rise above 2%. It seems unlikely that GDP growth will be strong because most of the recent reports have been weak, but it’s not impossible. Remember, the April industrial production report was hurt by its timing and the April retail sales report had a sharply negative seasonality calculation because of Easter.

I can’t stress how important the Fed’s guidance is at its meeting next Wednesday. The market has been trading all month like there’s no potential issue, but if the Fed guides for no hikes this year, it will be as big of a mistake as the relatively hawkish December hike. Heading into the Fed meeting, there is now a 17.5% chance of a cut. 

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