Yields charge higher
The most important story this week impacting your money is the 10-year Treasury breaking above 3%.
As rates move higher our investment committee is closely monitoring the financial sector (banks and other financial companies). In our view, if the financial sector behaves well with rising rates, then we believe the equity markets will continue to perform reasonably well for the short term. Financials rising, along with yields, are indicative of a strengthening global economy vs. a Fed that is simply being aggressive without cause. For now, you can see that both yields, and financials, are moving higher together.
We believe the current move in yields is more of an indication of strength and the possibility of a more favorable outcome on trade. We have been saying for a while now that the market is already pricing in these trade tariffs; as was apparent with this latest $200 billion against China. The market yawned. An actual deal however would be a huge catalyst to the upside. It appears others share this view.
“We are breaking out,” said Peter Tchir, head of macro strategy at Academy Securities Inc. “People had gotten a little complacent regarding the Fed keeping rates lower for longer and the yield curve staying flat. And now also there is a growing number of people who see possibilities for trade deals, which is good for global growth.”
Yields right now are probably the most important factor impacting portfolio decisions. We will continue to monitor this movement closely and keep you updated on our outlook.