I think this is an important discussion. Which way are rates headed?
Remember, Interest Rates setting up for a collapse was one of the reasons we were so bearish equities in late January, and looking to own bonds instead.
The thought process in January was the following: If 10s are going to break their 2012 & 2016 lows, is that most likely happening in an environment where stocks are doing well? Or are rates collapsing most likely taking place in an environment where stocks are under pressure?
Our bet was the latter. We used rates as a leading indicator.
Today we’re doing the same thing. But the data coming in is the exact opposite.
First of all, here are US rates going out last week at new 9-month highs:
So with a bullish momentum divergences at those lows and prices pressing up against new highs, should we expect a test of that 1.4% level in 10year yields?
Here’s the intermarket analysis. This is what the stock market and commodities market think about rates. Notice how all 3 of these look exactly the same. Stocks & Commodities had already turned higher. Now rates are following:
This is an interesting look at the “Equities for Rising Rates” Index Fund, which had already been ripping, leading the charge higher:
As you can see in the fund’s Fact Sheet that, “The goal of the fund is to provide relative outperformance, as compared to traditional U.S. large-cap indexes, such as the S&P 500, during periods of rising U.S. Treasury interest rates.”
And finally, here is a long-term chart of 30-year bonds. I’m not Mr. Trend Channel guy, but this one is pretty clear, isn’t it?
To me, the path of least resistance in rates is still higher. We haven’t seen any evidence yet to suggest otherwise.
So like we did in late January, we’ll ask the same question: If rates are going higher, is that most likely happening in an environment where stocks are under pressure and selling off? Or are stocks probably doing well in an environment where rates are rising, money is coming out of bonds, copper is outperforming gold and regional banks are leaders?
I’m going to go with the latter.
How do you feel about rates and the stock market implications?