Elliott Wave Options: Trump “Bump” … S&P or Bonds, Which is Right?

For the past two months, the interest rates on U.S. Treasury bonds have been trending higher. That’s at odds with the Federal Reserve’s two interest rate cuts. Bond yield should be declining, not rising.

Meanwhile, the S&P 500 jumped higher after the election, and still trades near an all-time high. Typically, if Treasury bond yields are rising, stocks should be selling off. This is creating a potential mismatch in the market.

One side must eventually win.

Right now, the data is mixed. Economic growth remains strong. But the labor market is slowing, and inflation remains above its target level.

Ultimately, more data may be needed.

Donald Trump’s reelection will likely bring about increased tariffs in the United States next year. That could create more inflationary pressure, and lower international trade. Both those factors slow the economy.

However, tariffs can benefit domestic companies, which may be a big reason for the jump higher in stocks.

For now, investors may want to adopt a cautious tone. The stock market has had a fantastic year, adding to further gains in 2023. There may be some more upside into the end of 2024, but going into 2025, the outlook gets murkier.

Thanks to interest rates staying high, investors still have an opportunity to earn a real yield in cash, which takes market risk off the table.

To view the full analysis on the markets right now, click here.