Wednesday's Market Minute: What To Watch For Today

As the 10-Year yield continues to slide from 7-year highs reached in October of 2018, stocks have stabilized and are only about 2% below all-time highs. The divergence between the two has widened to multi-year levels as the bull run in equities gets long in the tooth. Stocks rose sharply in the latter half of 2016 through January of 2018 while interest rates were also in a bullish trend.

So why are stocks still rising when rates plummet over the last seven months? They aren’t highly correlated historically, but sometimes warrant some concern. We saw a pullback in stocks in December but the ship has been righted after June gains have almost offset the May 2019 swoon. Are traders and investors relying on a probable interest rate cut for the optimism for risk assets such as stocks? Expectations for a rate cut by the end of July is up near 80% and giving the market bulls the reasoning for a jump into equities. We can see why stocks were bought early on this month on a relief rally from the dump in May, but what happens if the Fed doesn’t act on what the market wants? The divergence may be a warning signal, but in which way? Are stocks overbought or do rates need to rise to support equities?

The answer may come soon and if no rate cut is in the cards in June or July, we could see a reset for stocks moving into the dog-days of summer.

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