Is Bond Weakness the Catalyst Bears Have Been Waiting For?
The most notable action Monday was in bonds, even as Nvidia helped offset declines in hundreds of stocks.
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The market struggled on Monday, with breadth running more than three to one negative. The Russell 2000 IWM suffered the brunt of the damage, with a drop of 1.6%.
What was most notable about the action, though, was weakness in bonds and a rise in interest rates. Both the 20+ Year Treasury Bond ETF TLT and the 7-10 Year Treasury Bond ETF IEF broke recent lows and sunk to levels last seen in July.
There is some talk now about the possibility that the Fed may not cut rates at all at the next meeting in November, but the odds of a quarter-point cut are still quite high at 87%. If that drops further, it is likely to be a cause of concern.
Small-caps are typically the most sensitive to changes in interest rates, which helps explain the poor action of that group today. It was a sizable giveback after a good run, but small-caps always have more volatility than the broader market.
The one bright green spot on the market map was Nvidia NVDA, which produced a gain of over 4% and offset weakness in hundreds of other stocks. Because of Nvidia, the Nasdaq 100 closed with a gain of about 0.2%, although only 32 of 101 stocks in the index had gains.
There are some earnings reports coming up, but higher interest rates are causing concern and keeping equity buyers on the sidelines. While the market needs rest and consolidation, if bonds continue to struggle, it may be the catalyst that the bears have been waiting for.
Technical conditions are still quite positive, but some increased vigilance is necessary when there is action like this.
Have a good evening. I’ll see you Tuesday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
