The selloff in global bonds continued Thursday, holding U.S. Treasury yields at a 16-year high. Slightly cooler-than-expected inflation data in the Eurozone (Germany/Spain) did little to diminish expectations that markets will have to come to terms with interest rates staying higher for longer.
We see equity investors paralyzed, with bulls concerned about yields rising further and profit taking, and bears increasingly worried that stocks are already oversold and at risk of snap-back rally. However, as markets begin to price in that interest rates will remain high for much longer, pressure on rate-sensitive stocks continues.
T. Rowe Price fund managers are now even shorting ten- and thirty-year Treasury bonds, betting that yields will continue to rise as they catch up with the Federal Reserve's rapid rate hikes. It's a bold trade, considering yields have already hit a 16-year high – but another sign that a growing number of analysts are adjusting their portfolios and the odds of rates falling as fast as they've risen over the past 18 months are getting slimmer.
The rapid rise in oil prices, with U.S. crude reaching $95/barrel for the first time in more than a year before cooling somewhat, is also adding pressure to growth stocks and keeping inflation concerns alive.
We expect investors to remain nervous also because several Fed members (including Powell) will give speeches today and the central bank will continue to take a restrictive stance. Tomorrow will be an important day for inflation data, as both Eurozone inflation data and PCE data (the Fed's preferred inflation measure) will be released.
We expect September, which is generally the worst month for equities, to end on a negative note. Continued increases in oil prices will also lead to a difficult start to October. It is possible that the overall inflation picture (as data tomorrow suggests) is less bad than feared, which could help stocks to rebound on the final trading day of September.
👁 ROB'S MARKET OVERVIEW:
September 28, 2023
🇺🇸 US Markets ➡️/↘️
Cyclical Stocks ➡️
Tech/Growth Stocks ➡️/↘️
Financial Stocks ➡️
Defensive Stocks ➡️
Energy Stocks ➡️ (gains limited after very strong gains yesterday; overall remains bullish)
Materials Stocks ➡️/↗️
AUD ↗️ (benefiting from recent weakness, USD surge pausing & oversold commodity prices)
CAD ➡️/↗️ (benefiting from bullish oil prices)
GBP ➡️/↗️ (benefiting from recent weakness, USD surge pausing)
USD ➡️ (stabilizing; potentially slight correction)
EUR, CHF ➡️
⚒ Commodity Markets ↕️
Oil prices ↘️/↗️ (rebounding from correction losses)
Natural Gas prices ➡️/↗️
Metal prices ➡️/↗️ (supported by USD surge pausing & oversold conditions)
Precious Metal prices ➡️ (stabilizing after yesterday's sharp losses)
⚡️Cryptos ➡️/↗️ (supported by USD surge pausing; cryptos remain unattractive)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)