Stocks Jump Higher On September 28 Despite Rising Inflation Expectations

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9/28/23

#Stocks – $XLK, $XLY $XLI

#Macro – $SPX, $NDX, #Rates

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Stocks closed higher today, with the S&P 500 rising by around 60 bps. Bond yields also stabilized, with the 10-year falling by three bps to close about 4.57%. The day saw a lot of volatility in the rates, with the 10-year climbing up 4.69%. That resistance level dates back to 2007, and it could be a spot where we see rates stall out in the near term. If that level is breached, it could lead to a sharp move higher in the 10-year rate.

Interestingly, despite the rapid rise in rates, long-term inflation expectations aren’t coming down; they are rising. The 30-year breakeven inflation expectations rose to its highest rate since December 2022 at 2.43%. Again, this seems surprising despite a massive hiking cycle, and it seems to be going in the opposite direction of what one would expect.

It had looked like long-term inflation expectations were returning to pre-pandemic levels for some time. But that is now starting to rise again, and it will be essential to see where they go from here.

In the meantime, the S&P 500 finished the day higher by around 60 bps. It felt like a bounce day more than anything. The index was able to get to about 4320, where it found resistance and could not push through. The 4320 level is significant because that was the August 2022 high and was a region that offered support twice prior. So, the failure there today is essential and needs to be watched.

Additionally, the NDX today rallied, and more importantly, it rose to the blue uptrend line that formed off the January 2023 low, where the index failed. That, too, also seems like a significant level.

At least based on today’s trading, it seems possible the recent bounce in prices was a retest of current levels of support and perhaps nothing more. At this point, those levels of support have become resistance levels.

It was nearly the same case for the Technology XLK ETF today, rising to resistance at around $163.80 and failing to push through it.

Amazingly, it was the same case for the Discretionary XLY ETF. It rose to around $160.60 and was unable to get through resistance.

It was also the same for the Industrial XLI ETF at roughly $102.5.

Tomorrow will be a telling day.

-Mike

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