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Rising Treasury yields continue to be a major topic of conversation mainly because the market isn't entirely clear about why they are going up like they are.
A more market-friendly explanation suggests they are a byproduct of an improved growth outlook that bodes well for earnings. A less market-friendly explanation is that rising Treasury yields reflect burgeoning concerns about the budget deficit and inflation heating up again.
It may be some or all of the above. The point is that higher yields have acted as a governor that has slowed the richly-valued stock market's bull market tendencies. The 2-yr note yield is up one basis point to 4.05% and the 10-yr note yield is up four basis points to 4.24%.
The move up in yields has happened concurrently with a move up in stock prices following the Fed's September 18 FOMC meeting, which is to say the stock market so far has been moved more by the encouraging growth outlook than the other discouraging factors.
Nonetheless, everyone has their limits and the steady rise in yields, which has been accompanied by a steady rise in gold prices, the U.S. Dollar Index, and breakeven inflation rates, has tempered the stock market's buying interest.
That might have been the case regardless given that the stock market was riding a six-week winning streak coming into the week and was gearing up for an onslaught of earnings results that could undermine or support that rally effort. In other words, some natural consolidation activity is to be expected.
There have been some news triggers for the consolidation trade still unfolding this morning.
McDonald's (MCD) is dealing with an E. coli outbreak, Starbucks (SBUX) issued an earnings warning for Q4 and FY24, Qualcomm (QCOM) received a notice of a license contract cancelation from Arm Holdings (ARM), Enphase Energy (ENPH) disappointed with its results and guidance, Boeing (BA) issued a sobering view that it will take time to return to its former legacy, and Hilton (HLT) had a Q4 profit warning.
Generally speaking, the fallout from these disappointments at the index levels has been relatively well contained.
The S&P 500 futures are down 21 points and are trading 0.3% below fair value, the Nasdaq 100 futures are down 89 points and are trading 0.4% below fair value, and the Dow Jones Industrial Average futures are down 262 points and are trading 0.6% below fair value.
The indices, therefore, will be headed lower at the open, which in turn will create another buy-the-dip opportunity. The crux around today's trading action will be whether that dip is embraced or ignored, and what role Treasury yields will play in forcing the issue.
The September Existing Home Sales Report at 10:00 a.m. ET (Briefing.com consensus 3.90M; prior 3.86M), the $13 billion 20-yr bond reopening results at 1:00 p.m. ET, and the 2:00 p.m. ET release of the Fed's Beige Book, which provides a summary of economic conditions across Fed districts, will be among the Treasury market's guiding influences today.
