Will The Fed Rate Cut Stall The Market's Rally?

Nearly everyone in the financial markets were focused on yields last week. US bonds had their largest decline (and a corresponding rise in yields) since just after the election in 2016. This further confused many investors who are already nervous ahead of this week’s Federal Open Market Committee (FOMC) meeting. The European Central Bank's (ECB) action on rates Thursday was more aggressive than some expected, as the “ECB cut rates deeper into negative territory on Thursday and relaunched fresh bond purchases”.

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TOM ASPRAY - VIPERREPORT.COM

This composite yield chart shows that the 10 and 3 Year Yields made their lows on September 5th (line a) while the 30 Year T-Bond actually made its low on August 28th. All yields have risen dramatically, with the 10 Year T-Note closing at 1.903% after reaching a low of $1.429% the prior week. Both the 3 and 10-year yields are already reaching strong resistance from June and July.

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TOM ASPRAY - VIPERREPORT.COM

Some are comparing the sharp rise in yields to the market’s reaction after the 2016 election (highlighted in green). Though it was also a dramatic move higher, and one that lasted into the next year, the charts look quite a bit different. In 2016, the 30 Year, 10 Year and 3 Year yields had been rising steadily since July 2016 (see arrows). The dramatic increase in yields that we saw last week isn't supported by several months of upward motion. The current behavior might be a part of a bottom forming, or merely a rebound, it is too soon to say.

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TOM ASPRAY - VIPERREPORT.COM

The main beneficiary of the higher yields have been the regional banks, as the SPDR KBW Regional Bank ETF (KRE) closed on September 4th at $40.44 and last week it had a high of $44.82, up 8.14%.

The weekly chart shows that the downtrend from the three highs in 2019 (line a) is at $55.58. The high in May was $56.34. The weekly relative performance (RS) has moved above its WMA and is testing the downtrend (line b).

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