All markets today were weighed down by rising bond yields, particularly the small-cap Russell 2000. The chart above shows the 10-year Treasury yield, and what the market is worried about is raising long-term yields. The market is hoping for a rate cut in two weeks. The CME FedWatch tool still puts the probability of a ¼-point rate cut at 86%, but that’s down from 100% just a week ago. The market is waiting on economic reports, hoping they come in weaker or “cooler” than analysts expect.
This week, the only report is initial jobless claims, which is largely a non-event. However, next week is significant. On Tuesday, October 29th, we have the Consumer Confidence report. On Wednesday, October 30th, the ADP employment report, which could be a market mover, will be released. Thursday, October 31st, will be a crucial day as the Federal Reserve’s favorite report, the PCE index, which measures inflation, comes out. If the report indicates that inflation is tame, expect the market to rally and the 10-year Treasury yield to decline. If bond yields continue to go higher this week, expect a weak stock market. I am of the opinion rates are rising because speculators are shorting bonds. Either way, everyone will know next week once the economic date I mentioned is released. I am buying the dip. I expect year-end to be strong.