Ten-year Treasury yields are extending below first technical support in the 1.62%-1.64% range. Closing levels are far more important, but an intraday yield of ~1.54% has us anticipating a test of strong secondary support at ~1.45%.
Ultimately, we expect higher bond yields, more curve steepening and a return of cyclical/value equity leadership during Q2. Look for improving mobility trends to result in better forward guidance from cyclical/value companies during Q1 earnings results.
The profit outlook going into CQ1 earnings season is highly supportive for the broad equity market. There’s been some concern around last week’s higher PPI number, but the historical correlation between PPI and profits has always been positive.
Equities should have further upside for the next several months/quarters as we enter the early stages of a cyclical recovery. In my experience equity multiples wont rerate in the presence of accelerating global growth.
The total pullback in the S&P 500 (SPX) that followed mid-March price trend deceleration matched our expectation for the index to find support in the 3850-3900 range. A similar deceleration of price trend momentum from late-February generated a slightly larger pullback.
Tomorrow’s release of FOMC minutes from the March 17 meeting will be closely examined for any hints on the timing of Fed tapering. The Fed’s messaging around QE clearly needs to evolve in the weeks ahead with market expectations for tapering to begin in Q4.
Ten year bond yields continue to consolidate below ~1.74%. Bond prices are finally responding to deeply oversold conditions and expect the consolidation will take a little time before a backup in yields resumes.
Ten-year Treasury yields are currently trading at 1.68%, matching our expectation for a period of consolidation below the 3/19 intraday high of 1.74%. A weaker-than-expected March payroll number could pressure 10-year yields as low as ~1.45%, which was old technical resistance and now new technical
Ten-year Treasury yields remain just under the highs from 3/19. Releasing through 1.74% would likely pressure growth equity multiples further and benefit cyclical/value stocks.
Thursday’s release of final March manufacturing PMIs and US manufacturing ISM will influence bond yields. US and global economic activity is accelerating with PMIs set to hit records in the months ahead.
