Stocks dropped as soon as the results of the 10-year auction were announced. The yield of 3.99 percent was at the high end of expectations.
The Treasury is paying a lot more to borrow money; the auction on May 6 yielded 3.19 percent, so the Fed is paying 80 basis points more ... just one month later.
The tenor of stock chatter about higher rates has changed; in mid-May, as rates started to creep up, higher rates were cited as signs of an improving economy.
But the rapidity of the rate hikes in the past month is now generating chatter that this could be a damper on the housing recovery; hence the drop midday.
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We are stalled, but the trend is still up. On June 1st, the S&P 500 hit a new high for the year, and since then we have been in a low-volume grind, very much in thrall to the Treasury market. And volatility has continued to drop: The Volatility Index(VIX) is sitting at its post-Lehman low.
This morning, we again knocked on the door of new highs for the year, only to fall back. The problem: the market leadership is very narrowly focused on commodity stocks, with no leadership from financials (not for a month!) or techs (which have been leaders until recently).
Is the rally over, killed by higher rates? Not clear, but stocks are signaling that higher rates are going to be a major headwind.
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