Spike the Cannon?
The S&P 500 declined 0.3%, the Dow Jones Industrial Average fell 382 points, and the Nasdaq edged down 0.1%.
Sector-wise, materials, real estate, and utilities saw the largest losses, while communication services and tech led the gains.
Investor sentiment cooled amid concerns over economic challenges, profit-taking after recent record highs, and higher Treasury yields, with the 10-year yield reaching 4.43%.
Focus now turns to upcoming inflation data, including the Consumer Price Index, following the Federal Reserve's recent interest rate cut.
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Building from my note yesterday, the Trump agenda fuelled a rise in bond yields following the 2016 election. And bond yields (market-determined interest rates) moved higher heading into the 2024 election as the prospects of a Trump presidency rose.
Following the election last Wednesday, the benchmark 10-year yield jumped nearly 25 basis points. So, we go into today's October CPI report with yields testing this trendline from the 5% highs of last October.
Remember, it was that 5% level in the 10-year yield a year ago that forced the hand of the Fed. Jerome Powell signalled the end of the tightening cycle, concerned about the additional tightening effect that had taken place in bond yields (and the consequences for the economy).
Stocks were in a 10% correction when yields were at this 5% level back in October of last year.
The 10-year yield went on another run in April of this year, up to 4.74%. It was driven by the escalation of attacks between Iran and Israel, and the prospects of global war.
Stocks were in a 6% drawdown when yields were trading at the highs of that period (4.74%).
And now we have another sharp move higher in yields, trading into this same trendline. This time however;
Stocks are near record highs.
Over recent days, we've discussed the optimism surrounding the Trump agenda, which has reduced recession risk that has been priced into the bond market. That's good for stocks, and puts upward pressure on yields.
There is another risk in the bond market, as we discussed last week - the prospects that the DC bureaucracy could work to thwart Trump's agenda, as they did in his first term.
After all, he's vowed to end America's participation in the globally coordinated economic and social agenda that has been executed under the guise of "climate action" — which has resulted in trillions of dollars of spending, and has ballooned the size of government.
We've talked about the warnings to the Trump team from former UK Prime Minister Liz Truss. Her government was taken down by "financial establishment" / UK administrative state — using the bond market (spiking interest rates) to create economic chaos.
With that in mind, Trump named his Treasury Secretary - it's hedge fund manager Scott Bessent.
Bessent has talked openly about this bond market risk. He predicted early this year in an investor letter, that Yellen (which he will now succeed) would dangerously “goose the economy” into the election "to aid Biden's re-election."
Last week, he said he's now concerned that they've indeed taken the economy to a vulnerable place, and that they might "spike the cannon on the way out" - trigger an "economic problem" (like a spike in interest rates) to slow down the execution of the Trump agenda.