Inflation fears are ramping up as evidenced by the bond market sell-off! When bond prices go down yields go up and that is not sitting well with stock market investors. Yesterday the 10-year hit 4.75% for the first time in almost 2 years and the 30 year remains stubbornly above 5.20%. This is enough to send the markets lower. The Dow Jones Industrial Average (see chart here) opened down over 300 points to kick off September. The S&P 500 (see chart here) also opened down 55 points, while both the Nasdaq Composite (see chart here) and the small-cap Russell 2000 (see chart here) went red out of the gate this morning too.
That being said, markets remain near all-time highs despite the current backdrop. In fact, the S&P 500 (see chart here) closed the month of August out with a five-month winning streak! When I think of this statistic it’s mind boggling. How in the world can the S&P 500 be in a five-month winning streak when you have inflation continuing to go up along with the war in Iran that is escalating. The bulls are pointing to how well corporate earnings have come in over the past month and the forward guidance that many companies have provided which is also bullish. No question this dynamic has played a role in the markets performance all year long, especially in the tech sector. However, if interest rates continue to go up it’s only a matter of time before equities become even more volatile. The one thing that could stop interest rates and inflation from going higher, is a resolution and end to the Iran war. Let’s hope this comes forward, not only for the markets but especially for mankind.
As I look at the technical shape of the markets the Dow Jones Industrial Average (see chart here), the S&P 500 (see chart here) and the Nasdaq Composite (see chart here) are all hovering around their 50-day moving averages. Let’s see if this support zone can hold.
Good luck to all 🙂
~George