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LivestreamMenuSeptember is living up to its infamous reputation , at least on day one. Bond yields around the world followed rising oil prices and moved back to multiyear highs on Tuesday, pressuring equities. Nasdaq-100 futures led the way lower for stocks, losing more than 1% as tech struggled. Dow Jones Industrial Average futures shed more than 300 points, while contracts linked to the S & P 500 slid 0.6%. Rates have been the talk of trading rooms on Wall Street lately, as economists fret that higher energy prices will keep driving inflation and force the Federal Reserve to tighten monetary policy. The CME Group’s FedWatch tool shows a 66% chance that the central bank will increase its overnight rate by a quarter percentage point, to a range of 3.75% to 4.00%, at its next policy meeting later this month. Paul Ciana, technical strategist at Bank of America, doesn’t think stocks are in grave danger yet, but said “macro headwinds are building.” “Fed Chair [Kevin] Warsh used his first Jackson Hole address to push back against expectations for an easier policy path, resulting in a hawkish message,” Ciana wrote to clients. “Markets responded accordingly: U.S. front-end yields surged … gold retreated and the S & P 500 lost momentum.” Ciana said that an upside breakout that began in August for the S & P 500 “remains intact” as long as the index remains above 7,500. The S & P 500 closed Monday at 7,686.14 and hit an intraday record 7,816.70 as recently as August 13. .SPX YTD bar S & P 500 year to date “However, momentum is becoming less convincing, with RSI and MACD failing to confirm recent price highs,” Ciana said, referring to relative strength index and moving average convergence divergence measures . “Seasonal headwinds, election uncertainty, and rising front-end yields suggest the rally is entering a more challenging phase,” he added. “Rising yields increase the risk of consolidation rather than acceleration,” the technical strategist said. Not everyone is worried yields will derail the bull market, however. JPMorgan’s Mislav Matejka doesn’t “expect rising bond yields to present an insurmountable obstacle for stocks, as most of the up move should be reflecting stronger activity momentum.” Wells Fargo’s Ohsung Kwon also said that while he’s cautious on equities, “positioning isn’t negative.” Still, any move below the 7,500 level flagged by Ciana could mean more downside ahead for the S & P 500.Read More
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