Stocks were mixed Friday, with S&P 500 finishing flat and the Nasdaq finishing lower by 80 bps. It is ironic because the money leaves many of the overvalued technology names and is heading right into the overvalued industrial names and co.

The last time that industrials names, for example, were valued as such was in the year 2000. They are even more grossly overvalued today than in January 2018. The industrials did nothing after the January 2018 peak for nearly 2-years. The market right now is momentum-driven, with the money just chasing the stocks on the move. There are no value stocks because everything is overvalued. This is like buying GE (GE) at $60 in 1999.

10-year rates rose again, over 1.6%, and overnight Repo rates fell to negative 2% today, which means there are still plenty of traders looking to short the 10-year. The rising rates did weigh on the Nasdaq, but the S&P 500 managed not to be overly affected, and I’m sure there are plenty of people wondering why.

I believe the S&P 500 (SPX) has not been hit like the Nasdaq (NDX) because the S&P 500 has enough material, energy, industrial, and financials to offset the technology sector. Those sectors are rising not because they have “value” but because they are sensitive to the economic cycle and commodity prices. For this reason, I believe the S&P 500 is merely following the 10-year breakeven inflation rates, and to this point, those rates have continued to rise.

These inflation expectations haven’t fallen because 10-year TIP rates have not risen as quickly as 10-year Notes. Because of that, we have not seen the S&P 500 breakdown in the same way as we have seen in the Nasdaq. It leads me to believe that S&P 500 is likely more closely tied to changes in the TIPS rate than the 10-year Note.

Since July 31, the 10-year note has risen by more than 100 bps, while the 10-year TIP has risen by roughly 40 bps. That 60 bps difference is what has allowed the breakeven rate to climb to 2.28%, giving the economically sensitive sector the green light. However, if that inflation rate begins to fall, the S&P 500 is likely to follow.

With the Fed meeting this week, we could see this change. It will largely depend on what the Fed’s inflation outlook is; on the dot plots which may have a big impact on that; we will have to wait and see.