A Seismic Shift in markets will follow a reversal in yields.
TPA-RRG has melded the weekly report’s 3 macro sections this week, because TPA sees last week’s dynamics as ushering in a new scenario. The first 2 charts below show the US 10-Year breaking the uptrend. Chart 3 shows the 10-Year over the past 2 years. This is critical because the move since mid-2020 has been historic. The fastest increase in rates in the past 50 years (chart 3). The Labor market has remained strong, but eventually, this rising cost of financing will have an effect on everything…housing, car sales, etc….
The Long-Term Treasury ETF SPTL is now up 8% since the 3rd week in October (The Bloomberg Long U.S. Treasury Index (the “Index”) is designed to measure the performance of public obligations of the U.S. Treasury that have a remaining maturity of 10 years or more.). The SPTL was down 7.2% in a little over 6 months; an extreme move for the ETF (chart 4).
For stocks, it probably means that the break of S&P500 4200 was only temporary. The chart of the US 10-Year shows that the new short-term support of the 10-Year Yield is about 4.20%. If Labor does weaken, we could see the 10-Year break 4.20% support and go even lower (chart 5).
What this means for the TOP 20 is an influx of interest-sensitive stocks which have been under pressure, especially for the past 3 months when rates saw no hesitation in its rapid rise. Many Utilities have suddenly appeared in the TOP 20 this week.
A decline in interest rates means that the former beaten-up interest-sensitive sectors; Utilities, REITs, Regional Banks (who still live and breathe the interest rate spread) should continue their recent outperformance. (chart 6)
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Jeff Marcus founded Turning Point Analytics (TPA) in 2009 after 25 years on trading desks and 13 years as a head trader to provide strategic and technical research to institutional clients. Turning Point Analytics (TPA) provides a unique strategy that works as an overlay to clients’ good fundamental analysis. After 10 years of serving only large institutions, TPA now offers its research services to mid and small managers, RIA’s, and wealthy sophisticated individuals looking for a way to increase their returns and outperform their peers.