Stock Market Sees Best Week of the Year as Treasury Yields Stumble
Last week, the stock market experienced its best week so far this year, thanks to a combination of factors that blunted the negative sentiment surrounding the market. The 10-year Treasury yield, which had reached over 5%, was pushed back by a new Treasury schedule for refinancing and a less-than-stellar unemployment number. These developments overshadowed any comments made by Federal Reserve Chairman Jerome Powell.
In the previous week, there was a wave of negativity from prominent individuals on TV, in newspapers, and on social media platforms like Twitter. These billionaires, who tend to be pessimistic in their views, expressed concerns about the state of the market and the economy. However, their track record of providing valuable advice is questionable, as their recommendations are often dismal and lacking in positivity.
Surprisingly, President Joe Biden has not taken strong action against these negative voices. Occasionally, Commerce Secretary Gina Raimondo speaks about the administration’s efforts to promote business, but Biden himself has not been vocal about the market’s performance. This lack of support from the president, combined with concerns about the impact of unions on the market, has contributed to a sense of uncertainty among investors.
The increase in bond yields during this period was driven by counterintuitive factors. The Israeli-Gaza conflict and threats on the northern border did not lead to a flight to safety, as expected. Additionally, there may have been an oversupply of bonds. Despite these circumstances, there were no significant national numbers that would justify the rise in yields. Nevertheless, the stock market seemed to be heading in the wrong direction.
However, there were two factors that favored the bulls. Firstly, the market reached an oversold level that had historically resulted in a bounce. Secondly, the end of October marked a period when mutual funds tend to take their losses for tax planning purposes. These losses were evident but had gone unnoticed by many observers.
Taking all of this into account, it was surprising to see the stock market perform so well. Several significant events, including the Federal Reserve meeting, Treasury issuance schedule, Apple earnings, and the unemployment number on Friday, posed potential risks. Nevertheless, the market defied expectations, and the bulls ended the week on a positive note.
The following week saw relief rallies on Monday and Tuesday, with minimal selling observed. This indicated that the positive momentum was likely to continue, especially as bond yields showed signs of stabilizing. The Federal Reserve meeting turned out to be reassuring, as the decision to pause rate hikes reflected a greater concern about inflation than an economic slowdown. While some were puzzled by this decision, the overall effect was positive.
One of the key factors in favor of the bulls was the Treasury schedule, which surprised many observers. Previously, it was believed that the Treasury’s issuance of long bonds was problematic. However, it became apparent that hedge fund pioneer Stanley Druckenmiller was not the only one expressing concerns about this issue. The realization that the Treasury was taking action to address this problem added to the positive sentiment in the market.
Despite the bears’ initial confidence, the largest stock in the market, Apple, did not suffer any downgrades after its earnings release. This absence of negative ratings prevented fresh selling and led to a tug of war between the anti-Apple crowd and buyers. In the end, buyers prevailed, and the stock market experienced a positive end to the week.
While it remains to be seen whether this positive momentum will continue, the events of the past week have certainly defied expectations. The stock market’s performance has demonstrated resilience in the face of negative forces, offering hope for further gains in the future. As always, investors should stay vigilant and informed to make the best decisions for their portfolios.
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