Inside Markets — Consolidation

With the Fed’s September policy decision now out of the way, we look for longer duration bond prices to spend time consolidating gains. In our opinion, 10-year yields now at 3.73% will likely backup to the 3.90%-4.03% range over the next ~3 weeks.

As you can see, we don’t expect a big move in bond yields, but the short/shallow retracement could temporarily pause the rotation into cyclical/value and small cap stocks.  A period of consolidation in the Russell 2000 (RTY) should still be considered ‘healthy’ as long as the index holds above ~2045 area (~8% below current levels).  Our interest in the RTY is based on the opportunity for a potential performance catch up trade that could be worth ~40 percentage points.  The opportunity becomes more likely once the RTY sustains closing levels above the cycle high of 2264 with corresponding strength in copper prices. Our trigger on copper is something north of $440 (December futures contract).