Elliott Wave Options: Are Bonds Hinting Next BIG S&P Move?
Markets have had much to digest in the past few weeks. From big tech earnings to the latest Federal Reserve meeting, there’s been a lot of things that can potentially move markets.
Yet overall, markets have been muted. They sold off a bit ahead of the Fed meeting, and recovered late last week. Then, markets largely held their ground, trading relatively unchanged. While many investors may have been relieved to avoid a loss, the bond market offers better clues now.
The bond market shows that investors are getting bullish. Bond yields have been holding steady. However, they have been near the lower end of their range over the past few months. That’s a sign that investors expect interest rate cuts by the end of the year.
In fact, expectations have gone from one rate cut by the end of the year to a potential 2-3 rate cuts. That could mean a 0.75 percent drop in interest rates.
If that happens, stocks may reflexively trend higher. However, such a move lower may also occur amid declining economic data showing a recession has finally arrived.
That means any move higher in stocks following interest rate cuts may reverse, as a recession will mean lower corporate earnings.
Overall, the bond market continues to hint that interest rates will drop by the end of the year, one way or another.