As the Stock Market Churns, Treasury Yields and the Dollar Break Out

Stocks fell today, with headlines surrounding Nvidia weighing on the market. The decline was relatively modest, with the S&P 500 falling just 35 basis points. For the most part, the equity market continues to churn, with money rotating between different groups of stocks. The equal-weighted S&P 500 ETF (RSP) fell 90 basis points, so the headline index could have performed much worse. However, strength in a handful of hyperscalers helped keep the cap-weighted index relatively stable.

The SPY-to-RSP ratio continues to churn, but so far it has bounced off support, suggesting SPY is once again outperforming RSP. To me, that indicates mega-cap technology and AI-related stocks are leading the market again.

The bigger moves today were actually in the bond market, with the 10-year Treasury yield rising 13 basis points to finish the day at 5.13%. The federal budget deficit for October came in at $404 billion, which is unlikely to help matters as government debt continues to grow.

The 10-year yield is currently bouncing off an uptrend that dates back to late February and also appears to have broken out of a bull flag. Both are bullish technical developments for yields, suggesting that a move toward the 5.60% area is possible.

The US 2-year Treasury yield has also broken out, rising 14 basis points today to 4.89%. It appears to have broken free of either a bull flag or a falling megaphone pattern, suggesting that a move above 5% would not surprise me at all.

The Dollar Index is showing a similar pattern, with a breakout now taking shape. The sharp, nearly straight-line decline from April 2025 appears to be retracing, which could take the DXY back toward resistance at 103.5 and potentially as high as 104.60.

-Mike

Michael Kramer publishes independent macro and options research read across 10+ platforms and by institutional desks.

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Glossary by ChatGPT

Basis Point (bps): A unit equal to one-hundredth of a percentage point, commonly used to measure changes in interest rates and bond yields.

Bull Flag: A bullish technical chart pattern characterized by a sharp advance followed by a period of consolidation, often preceding another upward move.

Capitalization-Weighted Index: An index in which companies with larger market capitalizations have a greater influence on overall performance.

DXY (US Dollar Index): An index measuring the US dollar’s value against a basket of six major foreign currencies.

Equal-Weighted Index: An index that assigns approximately equal weight to each constituent, regardless of market capitalization.

Falling Megaphone Pattern: A broadening technical formation characterized by diverging downward-sloping trendlines and increasingly wide price fluctuations.

Fibonacci Retracement: A technical analysis tool that identifies potential support and resistance levels based on percentage retracements of a prior price movement.

Hyperscalers: Large technology companies operating extensive cloud computing infrastructure and data centers.

RSP (Invesco S&P 500 Equal Weight ETF): An exchange-traded fund providing equal-weighted exposure to companies in the S&P 500 Index.

SPY (SPDR S&P 500 ETF Trust): An exchange-traded fund tracking the capitalization-weighted S&P 500 Index.

SPY-to-RSP Ratio: A relative performance measure comparing the capitalization-weighted S&P 500 with its equal-weighted counterpart.

Treasury Yield: The annualized return implied by the market price of a US government debt security.

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