Yields on Cusp of Breakout: What Does It Mean for Stocks?

investing.com:

It will be a holiday-shortened trading week, with Monday being a half day, while the market will be closed on Tuesday. This will be a hectic week with a lot of data. Starting Monday with the ISM data for June and finishing the week with the Jobs report.

Barring a disaster from this data point, I think the Fed will raise rates again in July. Fed Fund Futures are pricing an 81% chance of a July hike, and the United States 2-year rate has broken out and moved beyond some key resistance levels.

Many people believe the market no longer cares about the Fed or rate hikes, which I’m afraid I have to disagree with. The equity market has not responded more negatively to Fed rate hikes because the bond yields have been relatively range bound, with the 10-year trading between roughly 3.3% to 4%.

This is because the bond market thought that the bank problem would cause a Fed pivot and rate-cutting cycle, but so far, that turned out to be wrong. Now rates are on the verge of correcting for that mistake and moving higher.

What causes the equity market to respond is not always the actual rate but the rate of change. In this case, a move higher on the 10-Year beyond 4% would likely get the equity market's attention and cause the equity market to respond.

But with rates range bound, spreads have narrowed, implied volatility has fallen, and the dollar has been stuck, which has allowed financial conditions to ease and the equity market to rise. But again, I think this is ending because, as I have been talking about for some time, the economy remains more robust than expected, and inflation is stickier than expected. This means rates on the curve’s long end are probably way too low.

This period has been the first time since 1975 that the