Markets near a key point in the intermediate trend?

Technical Stock Market Briefing for Day & Swing Traders
| By Harry Boxer, Technical Market Analyst

The stock market’s recent streak of weekly gains was interrupted last week, as rising bond yields began to attract investors’ attention.

The S&P 500 and the Dow fell around 1% and 3%, respectively, snapping a six-week string of positive results. The NASDAQ edged upward to post its seventh weekly gain in a row, lifted by strong results from technology stocks.

Although its closing level on Friday didn’t break a record, the NASDAQ briefly hit an all-time intraday high earlier in the day. At Friday’s close, the index was 0.7% shy of the record close set three and a half months earlier. In contrast, the S&P 500 has largely been in record territory since mid-September.

The Best performers last week in the S&P 500 index were Tesla (TSLA)+22%, Philip Morris (PM) +8% & General Motors (GM) +6%

Just over a month has passed since the Fed kicked off a new easing cycle, cutting its policy rate by a larger-than-typical half a percentage point. Yet, during that time, both 2- and 10-year Treasury yields have climbed, challenging the prevailing narrative.

Could the rally in rates pose a serious threat to the stock market’s momentum?

Along with the strong economic data, markets have had to absorb an upside surprise in inflation, leading to expectations for a more gradual and shallower rate-cutting cycle than anticipated at the September Fed meeting. Also, the U.S. presidential election on November 5 is fast-approaching and is raising fiscal concerns. Based on campaign proposals, the elevated debt will likely increase further under both candidates. 

Recent rate volatility in the U.S. Treasury market reached its highest since last December, with the 10-year yield climbing from around 3.60% to 4.20%

Financial market signals have been broadly positive. Since the Fed’s initial rate cut, sector leadership has been balanced, with both growth and cyclical sectors outperforming defensives, while credit spreads have tightened to historically low levels.

Now near the midpoint of earnings season, a handful of U.S. mega-cap technology stocks are expected to continue generating a disproportionate share of overall earnings growth. Analysts expected that the Magnificent Seven will generate average third-quarter growth of 18.1%. In contrast, the other 493 companies in the S&P 500 were projected to produce growth of 0.1%.

Given the strong equity gains year-to-date and election uncertainties, a further rise in yields could lead to some market volatility.

I believe the markets are near a KEY point in the intermediate trend and could be on the verge of an important short term move.

Whether its a crack of important support and a substantial pullback or a spike up/blow off phase isn’t clear.