Why Retreating Yields Don‘t Lift All Boats

Stocks declined but won‘t they run higher next? Tuesday‘s downswing changed precious little, and the Congressional testimony was a non-event. The key happening was in long-dated Treasuries, which rose yet again – the much-awaited rebound is here, and brings consequences to quite a few S&P 500 sectors.

The index is likely to advance, but the engine is going to be tech this time – not value stocks. I view this as a deceptive, fake strength in the bull market leadership passing over to value inevitably next. That‘s why I expect the S&P 500 advance to unfold still, a bit rockier than it could have been otherwise. This will hold true for as long as TLT is at least somewhat rising:

(…) technology would recover some of the lost ground on rates stabilization. …the $UST10Y move has been a very sharp one, more than tripling from the Aug 2020 lows.

Technology though declined yesterday, and so did value stocks. Many markets went through selloffs yesterday, among commodities most notably oil. While nothing has substantially changed, we got a serious whiff of risk-off environment, pertaining to precious metals too.

Especially concerning was the miners underperformance, given that none of the moves indicated accumulation within the sector. Reason number two to expect PMs short-term vulnerability was ignorance of retreating yields that stretches a bit further below what can be viewed as a run-of-the-mill PMs upswing correction. A short-term crack in the TLT decoupling dam that can still be reversed even though it doesn‘t look likely at the moment – better not to wave it off it though.

Let‘s move right into the charts (all courtesy of www.stockcharts.com).

S&P 500 Outlook

S&P 500

Regardless of yesterday‘s setback, the outlook in stocks hasn‘t changed. Once the current corrective move is over and value reassumes leadership, expect the gains to be more pronounced than what we would experience rather shortly.

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