Improved mood after US sentiment data highlights what will be an ongoing trend

Grind higher in yields can’t derail the market

First, I believe there are two markets. Tech is on its own and i don’t think that yields matter that much to tech, SPACs and other pandemic trades. They’re a sentiment-driven rollercoaster. There’s somewhat of a feedback loop with yields but it’s overstated.

In the broader market, yields matter more but it’s debatable how much. Even today, the S&P 500 is barely down with rates 6-8 bps higher at the long end. I’m a bit surprised it’s not more severe given that rise but at the same time, I think that’s the right reaction in the bigger picture. There’s always the risk we get another blowout higher, especially around the Fed; but barring that the backdrop is positive.

Why? The U Mich survey and positive market reaction to it highlights the tailwind.

Almost every economic data point from now through August is going to be better than the month before. That’s a tough trend to bet against.

As for the short-term, watch out for a break of the short-term top in 10s. That will be trouble.

Grind higher in yields can't derail the market

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By Jonathan Prop

Jonathan Prop is an independent financial advisor. He has been working in finance for the last 20 years. After retiring early in his 40s, Jonathan decided to help others get to grip with financial markets, particularly his area of expertise - forex!

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