S&P 500: Headwinds Mount as Oil Prices, Rates and US Dollar Head Higher
The holiday-shortened trading week will focus more on digesting data from last week than on anticipating new data. The key data to watch this coming week is the ISM Services Index, expected to be released on September 6 at 10 AM. Analysts predict that the services composite will dip slightly to 52.5 from 52.7.
More importantly, data from the past week seemed to alleviate concerns about an immediate economic slowdown. As a result, GDP models, including the Atlanta Fed’s GDPNow model, have remained largely unchanged. The GDPNow model currently predicts a 5.6% growth rate for the third quarter, down slightly from the previous estimate of 5.9%.
This contributed to higher yields on Friday, continuing the trend observed over the previous few weeks. The 30-Year yield led the way higher once again. It seems that the 30-year yield is poised for its next upward move as it breaks free from a short-term bull flag pattern. This could potentially lead to a significant jump, possibly reaching around 4.8% over the next few weeks.
A similar pattern is present in the 10-year rate, which could lead to the Treasury rising to around 4.5% in the near term.
This is obviously bearish for the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) as long-end rates move higher, meaning the TLT heads lower and likely surpasses the recent lows of around $92.50 and pushes the ETF well below the October 2022 low of $91.85.
Higher interest rates are likely to be fueled by a stronger-than-expected US economy, prompting the Federal Reserve to maintain more restrictive rates for an extended period. Additionally, rising oil and gasoline prices could bolster headline inflation for the remainder of 2023.
Oil prices climbed above $85 per barrel on the WTI index,
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