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Stocks finished higher, but today’s gains were more balanced, with both the equal-weighted and market-cap-weighted S&P 500 indexes rising. Meanwhile, rates and the dollar fell sharply following a week of rising continuing jobless claims.
If we’re entering a period when the unemployment rate is likely to rise, one would naturally expect the yield curve to steepen. The 10-year minus 2-year Treasury spread has been stuck around 50 basis points for a considerable time, but it now appears to be only a matter of time before that steepening resumes.
The 5-year Treasury yield broke down today as well, and now I’m wondering if it’s going to undercut its recent lows around 3.5%. I’m not exactly sure what would need to happen for the 5-year yield to decline that significantly.
Meanwhile, the dollar continued to weaken, falling below support at 97.60 and closing beneath that level, setting up a potential move down to 95.50.
Volume today in S&P 500 futures was slightly better than yesterday, though that’s not saying much—overall levels remain weak. At this point, I have no strong view on the stock market; it seems stuck in the land of the absurd. Volatility is highly compressed, even with significant economic data next week and potential trade “deals” due on July 9. The market currently refuses to believe anything regarding tariffs—and why would it? That’s precisely the risk right now, because if tariffs actually go into effect on July 9, especially sector-specific ones, or worse the economic data does turn sour, equity markets are completely positioned offsides.
The FX market appears to be signaling that tariffs are indeed coming, as indicated by the dollar’s decline since the initial news broke in April. The most pronounced currency moves continue to be seen in regions like Taiwan and South Korea.
Even high-yield spreads haven’t fully recovered their recent widening, reflecting an ongoing level of market concern.
That’s why the equal-weighted S&P 500 ETF (RSP) hasn’t meaningfully advanced beyond its mid-February highs.
See you Sunday
Mike
Terms By ChatGPT
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Equal-weighted ETF (RSP): An ETF that allocates the same weight to each stock within the S&P 500 index, rather than weighting by market capitalization.
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HY spreads (High-Yield spreads): The difference between yields on high-yield corporate bonds (“junk bonds”) and safer U.S. Treasury bonds. Wider spreads generally signal increased credit risk or market concern.
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Volatility compression: A market condition where volatility is unusually low, typically signaling complacency or uncertainty ahead of a significant event.
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Positioned offsides: A market term meaning investors are incorrectly positioned for upcoming events, potentially leaving them vulnerable if unexpected news occurs.
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Tariffs/Sector-specific tariffs: Taxes on imported goods, which can impact specific industries or sectors differently, potentially disrupting markets.
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Support level (FX context): A price level where a currency has historically found buying interest, preventing it from falling further.
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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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