Bond Speculators
Macro Perspectives
We have key technical reversal signals at work in the interest rate market. The expectations for a final Fed rate hike by the year's end have dwindled from a coin flips chance just a week ago, to less than a 25% chance today.
This all comes as speculators are net short treasury futures (i.e. short bond prices) at record levels. What does that mean?
They are leaning heavily in the direction of a break higher in yields (lower in bond prices) - these extreme positions tend to be contrarian indicators.
The last time the market was positioned near this extreme of a short (betting against bond prices) was September-October of 2018. Those bets were wrong. It was the turning point, and those levels weren't seen for another four years.
Given that nothing has been a bigger burden on stocks over the past nineteen months than the Fed's tightening cycle, this move in the interest rate market is good news for stocks.
It comes as Q3 earnings are kicking into gear, and the expectations have, once again, been dialed down - Wall Street is expecting a slight decline in S&P 500 earnings. Keep in mind these Q3 earnings are coming from a quarter that is projecting close to 9% nominal growth.
As we discussed last week, this sets up for positive surprises, which is fuel for stocks.
So far, we're getting it - we heard from two tech giants after the close;
For Google it was record revenues on double-digit growth, with 46% EPS growth (yoy).  Â
Microsoft grew revenue by 13% and EPS by 27%.
Once again, both calls were dominated by the discussion on AI. Remember, we are just in the early days of maybe the most productivity enhancing technological advancement of our lifetime: generative AI.
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