Will Last Week’s Events Derail The Stock Market?

It has been a very active week in the credit markets as there have been wide swings in yields that for many have not lined up with the consensus views on the economy. The further drop in bond yields on Tuesday was followed by a sharp spike on Wednesday, which was evident during the U.S. Treasury’s $25 billion sale of 30-year bonds. According to Bloomberg’s U.S. Government Securities Liquidity Index, the “conditions were the worst since March 2020”.

The closure of the bond market on Thursday for Veteran’s Day probably slowed the ascent of bond yields, but it still had quite an impact. The yield on the 30 Year T-Bond dropped to 1.83% on Tuesday, breaking support (line a), but then closed the week at 1.95%.

The shorter-term maturities have been even more volatile, as the 10 Year T-Note dropped to 1.415% on Tuesday before closing the week at 1.582%. Both the 30 Year and 10 Year yields are still well below the October highs, but the yield on the 3 Year T-Note has made significantly higher highs after breaking through resistance (line c) in September.

The bond market action was tied in large part to last week’s inflation data. The Producer Price Index rose the expected 0.6% in October as surging prices in autos and gas translated to an 8.6% annual increase.

It was the 0.9% increase in Wednesday’s Consumer Price Index (CPI) that really got the market’s attention as the CPI rose just 0.4% September. This year-over-year increase in the CPI of 6.2% was the highest since November 1990.

Even though the stock market got a break from the bond market holiday on Thursday, the averages still ended the week lower.

It was not surprising that the S&P 500 declined 0.82% on Wednesday, but the index closed well above the lows as stocks rallied in the last hour of the day. The averages moved higher for the rest of the week with the S&P closing down 0.3%. Only the SPDR Gold Shares (GLD)

GLD
had a positive close, up 2.7%, but it is still down 2.2% year-to-date (YTD).

All of the Dow averages were lower, led by a 1.1% decline in the Dow Jones Utility Average, with the other two averages recording smaller losses of 0.5-0.6%. The Nasdaq 100

NDAQ
was down 1.0% for the week, despite its gain of 1% on Friday.

The daily chart of the Invesco QQQ Trust (QQQ)

QQQ
shows what appears to be just a normal pullback after the QQQ exceeded the daily starc+ band for several days during the week ending November 5. On Wednesday’s decline, the QQQ had a low of $357.53, which was fairly close to its daily starc- band. On Friday, QQQ closed at $394.70, just 1.6% below all-time high at $400.99.

The Nasdaq 100 Advance/Decline line looks quite positive, with a new high on Friday, leading prices…