Stocks, bonds sell off as investors eye Fed moves and earnings

• Stocks sold off!  Bonds sold off!  Yields Pierce resistance at 4.17%.

• Gold steady, Oil up, Dollar up.

• Investors reconsider the data and the next Fed move.

• Futures lower this morning…Stick to the plan.

• Try the Classic Lasagna

Good morning.  For those of you who saw my morning video yesterday you would have seen that I was (home) at the NYSE – I hosted some business students from Gonzaga University, and I also appeared with Nicole Petallides on the Schwab Network.  Here is the link to my appearance on ‘Trading 360’ yesterday.

OK – Breathe!  Because that is what stocks did yesterday….’they took a breather’ as investors/traders and algo’s tried to figure it out…  They tried to figure out what’s next for stocks as we move thru a crowded week of earnings, they tried to figure out what the eco data is telling us and they tried to figure out what the next move will be by the FED – and by all accounts – it appears to be that just maybe the FED will do nothing at the next meeting…(did you see that 10 bps move in the 10 yr. that saw it test, pierce and surge thru trendline resistance at 4.17% yesterday?)  Remember, we discussed this…I forewarned you…. I also said we would test 4.3% is short order…this morning the 10 yr. is yielding 4.21%…. Just sayin’.

In any event by the end of the day – the Dow gave back 345 pts or 0.8%, the S&Ps lost 11 pts or 0.2%. the Nasdaq gained 50 pts or 0.3%, the Russell lost 37 pts or 1.6%, the Transports gave back 194 pts or 1.2%, while the Equal Weight S&P lost 63 pts or 0.9%.   

All of the indexes kissing the upper band on their RSI (Relative Strength) charts and that just suggests that stocks just maybe approaching ‘overbought’ territory….and so the pullback should surprise no one.  All while we are facing about 20% of the S&P or 100 companies to report their 3rd qtr. earnings, but more importantly their forward guidance – that includes the 4th qtr. and into the 1st qtr. of the new year.

The only sector of the 11 S&P sectors to rise was TECH – XLK + 0.5% and that makes sense – as the Nasdaq index was the only index to gain….Real Estate got crushed down 2%, and that dragged the Homebuilders (XHB) down 3% – think that explosive move UP in the 10 yr. ……and the story yesterday was that the 10 yr. will test the 5% threshold sometime in the near future.

And you recall what happened the last time the 10 yr. kissed 5%?  It was October 2023 – the S&P lost 7%, the Nasdaq gave back 9%, the Russell gave up 15%.  The Real Estate sector – XLRE gave up 18.5% while the Homebuilders lost 17.5%.    

Healthcare lost 6.5%, Consumer Staples – 13%, Financials -10%, Basic Materials -12%, Consumer Discretionary – lost 14.4%, Industrials – 10%, Utilities gave up 19%, Communications -9%, and Energy gave up 10%. 

Down the chain – Semi’s gave up 17%, Metals & Miners -9%, Cybersecurity – 7%, Aerospace & Defense gave up 8%…. I could go on, but you get it, right?

Now – while it is ok to discuss what happened when rates rose it is important to remind you that when rates fell – all of these sectors rebounded strongly. Which again, speaks to the ‘don’t make emotional decisions – stick to the long-term investor’ plan. Talk to your advisor – create a well-diversified portfolio that will weather the storm.

So, what happened to bonds yesterday?  Well, they sold them off, in fact bonds around the world sold off – as investors/traders and algo’s rethink the FED’s future pathway and the prospect of slower or NO rate cuts is upending the narrative.  The TLT (20 yr. bond ETF) lost 1.75% while the TLH (10 – 20 yr. bond ETF) gave up 1.4%.  The AGG (Core US Aggregate bond ETF and includes US treasuries and corporates along with the gov’t related ABS, MBS & CMBS).

ABS -Asset backed securities (loans, leases/receivables)

MBS – Mortgage-backed securities.

CMBS – Commercial mortgage-backed securities.

At the core – the weakness is a direct result of investors reassessing the outlook for FED policy.  Investors and traders are now rethinking those ‘aggressive’ rate cuts…given the fact that the latest economic data remains robust and now some FED heads are raising the ‘caution’ flag – while others are still supporting the Full Steam Ahead approach – and the one that took the stage yesterday was San Fran’s Mary Daly….she is calling for more rate cuts (as if the data supports that), but remember – SHE is also the one that ‘missed’ all the ‘data points’ that led to the SVB (Silicon Valley Bank) crisis/disaster/debacle that rocked the markets and the banking industry in March 2023.   

It is rising oil prices, its all the gov’t…