Bond buying and weaker market breadth point to a turn

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 20:49

   Is winter coming for stocks? I think it's really important that the 10-year and the 30-year yield went up last week when stock markets were faltering. Because if you remember, it was hardly a week ago when all bad things were being done by treasuries and treasuries were trash uh the u.s fiscal system is unsustainable inflation is out of control these things are monstrous they only go down and with that as the context things got spooky enough in equities that people started buying the crap out of treasuries anyway like you know we had like a 19 basis point day on the 10-year last week i can't remember the last 19 basis point day when the yields went down that much. People were really buying the stuff. And by the way, the bad feelings about the bond market may have been overdone, right? When you can get

2. 21:54

   in real terms, in inflation adjusted terms, you're talking about two to 3% from the bond market. I'd say that's pretty good. And so it's not like there was an irrational rush into bonds, But this fast change of mood, I think really told you something. And that was, you know, and that's extremely striking. That's point number. Number one, and I'm rattling on here, but I'll get it all out and then you can respond.

3. 22:20

   Point number two is that cracks had really been appearing in the equity markets for quite a while before this happened. So as we've discussed on this show before, I believe, the NASDAQ and the S&P 500 have been heading in a herky-jerky way sideways for six months and since May. But below that, we have seen the market behaving in a way that is consistent with the end of a cycle and is consistent with higher bond yields putting pressure on them.

4. 22:54

   So we've seen things like one of the examples I pointed out last week was there was this group of industrial stocks like GE Verona and Caterpillar was one of them and Comfort Systems. These were all the industrial stocks that sort of benefit from the AI boom. They like put the cooling and electronic systems into and the construction part of the data centers. Great. Those had an unbelievable run. A lot of them doubled.

5. 23:23

   well they've been doing like crap since may right uh and you know the small cap stocks uh have been doing terrible uh a lot of the interest sensitive parts of the s&p utilities real estate those have been doing badly so it was like you know more and more work was being done by the big tech stocks. And last week, those started to crack. And we saw the response in bond yields. And it's like, okay, something is different as now. It's not all unicorns and rainbows and hard candy at this point. You know, it's like something feels different. So I'm not calling for a crash, but the euphoria is broken. There's a much more realistic, much more wary set of fundamental action, price action going on in the stock market now.

6. 24:22

   And that remains true today, even though we had a pretty decent day today in markets,