Are Bonds and Interest Rate-Sensitive Stocks Giving Us an Advance Warning?
Investors mainly stayed on the sidelines ahead of Wednesday's CPI report, but there were clues in the trading action.
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After a shaky morning, stocks recovered in the afternoon Tuesday and closed near the highs of the day, although breadth was almost flat and most of the strength was in the Magnificent Seven and semiconductor names.
The Nasdaq 100 QQQ led with a gain of about 0.9%, while the DJIA lagged with a loss of 0.2%. The big negative was weakness in banks, and JPMorgan Chase JPM, in particular, which suffered its biggest one-day loss since June 2020.
It is good news that Monday’s tepid bounce wasn’t immediately reversed, but there was little energy on Tuesday as investors mainly stayed on the sidelines in front of the CPI report, which will be issued prior to the open on Wednesday.
In addition, it will be interesting to see if the presidential debate has any effect on the market Wednesday. We can be pretty confident that both sides will declare victory, but will there be any policy issues that have a market impact? We shall see.
I remain very cautious overall and am concerned we will see deeper corrective action as we head into the Fed meeting next week. Bonds and interest rate-sensitive stocks are quite strong and are signaling more economic weakness.
The stock market is still counting on a soft landing, but there are growing concerns about the economy slowing, which won’t be easily resolved. A Fed rate cut has the potential to be a negative catalyst depending on how things develop.
There are still plenty of good opportunities to develop, but the most important issue right now is getting the timing right and not putting substantial capital into work too early.
Have a good evening. I’ll see you Wednesday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
