The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Blame bonds
Yields climbed significantly in Japan. Yields climbed significantly in Europe. Yields climbed significantly in the US. The climb in yields across the globe pressured equity markets across the globe as well. Japan fell almost 2%. Europe fell almost 2%. Our futures dropped from flat last night to down 85 at 8 AM this morning. Crude climbed across the curve as well so bond markets almost certainly were influenced by the higher oil prices. The S&P 500 opened down about 70 points and wandered around from down 100 to down 45 points over the day. Markets weren’t trading with fear but the stock market took a lump just the same. Inflation concerns in bond markets was the topic du jour.
The inflation story has been present since the start of the US/Iran conflict. Today it made waves in global yields. There may be technical considerations that added to the bond selloff too. US 20 and 30 year yields just crossed above 5% recently and the technicians are treating this as an upside breakout. For Japan, the 15 and 30 year yields just broke above 4%. For Germany, yields from 20 to 30 years out broke above 3.5%. You get the idea.
Economic strength plus inflation are drivers of higher global yields and today the bond markets really reacted. Equity markets couldn’t ignore them this time and down we went. Today’s yield moves are large but the stock market reaction was not. It’s impossible to say whether that’s a sign of equity market robustness or that equities are on the verge of a big drop.
One thing is certain. If yields keep climbing higher, stocks are going to go down a lot more. The bond market needs to consolidate or turn if the stock market is to keep itself near all-time highs.
The question therefore is, what will make the bond market happy quickly?
The answer is anything that will bring inflation pressures down. And the first best way to do that is to get the Strait of Hormuz reopened.
Do we think there’s a good chance of that happening before next week?
Have a great weekend. See you Monday.
-Mike
Visdom Market Commentary
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