Elliott Wave Investor: Bonds Change Direction … Cut or No Cut?
The past few months have seen a disconnect between the stock and bond markets. Stocks have trended higher, even as bond yields have trended higher. Typically, that’s the opposite of what happens. Falling bond yields help push stocks higher.
Now, bond yields are starting to tick down. That could be a sign that the bond market is ready to follow the rate cut trend started by the Federal Reserve.
The move also comes as the Federal Reserve looks ready to slow its pace of interest rate cuts. Markets still expect a quarter-point cut later this month. If that happens, rates will be down a full 1% from their cycle high.
From there, the Fed looks ready to slow down. Inflation remains well above their target rate. And concerns over tariffs and a trade war could mean further inflationary pressures in 2025.
For now, with bond yields declining, the market looks less stressed going into the end of 2024. But if rate cuts slow significantly, it could put pressure on the stock market next year.
Stocks may see a slight selloff in the first half of December. But it’s likely that they’ll follow a Santa Claus rally into the end of the year. After that, 2025 could see a market pullback in the 10% range.