Bonds Behaving 'Almost Like A Meme Stock,' Says Equity Strategist: 'The Bond Market Is In Charge'

The bond market’s recent behavior, akin to meme stocks, is now influencing the equities market, according to a leading strategist.

What Happened: Stocks are reacting to shifts in the bond market following a significant drop in yields over the past two months, reported Business Insider. This has sparked a rally in the S&P 500 and Nasdaq.

 “The bond market is in charge, as far as I’m concerned,” Richard Kneller, U.S. equities desk strategist at Stifel, told Bloomberg TV on Thursday.

He further noted that the bond market is reacting “almost like a meme stock.” This behavior seems to reflect the turbulence seen in meme stocks during 2021 when online communities drove up shares in companies like GameStop GME and AMC AMC.

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The bond market has experienced sudden fluctuations in recent months as investors respond to prospective Federal Reserve policies. New inflation data and the results of recent Treasury auctions have caused sharp movements in yields.

Speculation varies greatly about the Federal Reserve's rate cuts in the next year, ranging from four to six. This anticipation could potentially put it at odds with Wall Street’s optimism.

Kneller added, “We have the Powell pivot on the 13th and the market now thinks you’re going to get five or six rate cuts.” However, he emphasized that nothing is certain as the Fed and other central banks remain data-dependent.

Why It Matters: This volatility in the bond market follows a prediction by Howard Capital Management’s CEO, Vance Howard, that long-term bonds could outperform the S&P 500 in 2024 despite recent turbulence. Howard noticed a 13% increase since the start of November after investing in the iShares 20+ Year Treasury Bond ETF a few weeks prior.

Meanwhile, Bank of America has projected a milestone of 5,000 points for the S&P 500 by the end of 2024, a robust 10% jump from its current level. This optimism is driving a shift towards a broader market appeal, with the firm finding “other areas of the market incredibly attractive.”

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