Bonds Under Pressure Despite Rate Cut Chances
Poor action in bonds drags down the market as investors worry about global spending.
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Stocks battled back from a poor start on Tuesday, but there was still plenty of red on the screens at the closing bell. Only about 30% of stocks finished with gains, but there were some pockets of strength, and 175 names hit new 12-month highs.
The major problem was weakness in big-cap technology names. The Nasdaq 100 QQQ lost 0.8% and the Magnificent Seven MAGS declined 1%. Only 22 of the 100 stocks in the Nasdaq 100 managed to produce gains.
Some of the market weakness was due to concerns about seasonality and upcoming economic data, but the biggest problem was poor action in bonds. Despite the great likelihood of a Fed interest rate cut in about two weeks, bonds are under pressure and yields are rising. There is more and more concern about government spending around the world and growing deficits. Politicians are not addressing this growing crisis, and it is making the bond market very nervous.
The market has had a fantastic run off the lows hit in April, and it is overdue for some consolidation or corrective action. So far, there hasn’t been any news to upset the apple cart, but we can never know when investors might decide that there is something significant to worry about. Overall price action is still quite good, and it can be argued that there is rotation out of the big-cap technology names and into other secondary stocks that are still quite attractive both technically and fundamentally. It is still an environment where stock picking is working, although it is narrow.
We have the JOLTS job opening news on Wednesday that will attract some attention, but it is the jobs news later in the week that has the greatest capacity of generating a market move.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
