Inside Markets

Treasury yields have been rising over the last few weeks in response to improved macro data and election dynamics.

The setup into Mag 7 reports looks like it has improved from last quarter at this time with hedge fund positioning falling to the ~55th percentile from the ~80th percentile.

Markets and businesses generally prefer a divided government election outcome given a reduced likelihood of significant change.

Crowded long positions have underperformed this earnings season, while crowded short positions have already rallied to the 95th percentile.

Yesterday’s rapid repricing in bond yields led to the broad selloff in equities, particularly in rate sensitive sectors.

Today’s backup in yields is mostly attributed to the pricing of election uncertainty.

The bond market is starting to price-in some election-related volatility with MOVE Index options reflecting an unusually large ~18bp swing immediately following the election.

The RTY faded late in yesterday’s session to close just below the cycle high of 2264.

The Russell 2000 (RTY) has outperformed large cap benchmarks (SPX and NDX) over the last three sessions and is higher today as the index tests the cycle high at 2264.

Bank earnings on Friday helped build confidence in the Goldilocks narrative, which carries into today.