Friends

The bond market continues to be the catalyst for many of the stock market moves we have seen lately. Today, interest rates continued higher on stronger than expected economic news. In the past months, the Fed has cut the Fed Funds rate (short term rates) 100 basis points only to see the yield on the 10-year Treasury note rise by 100 basis points. We talked about the possibility of that happening at our Spring lunch last year and confirmed that it was happening at our Fall lunch. Is a normal steepening of the yield curve a bad thing? We had an inverted yield curve for so long, market participants were beginning to believe that was normal. Nevertheless, stocks have been getting jittery when the long end of the curve sees yields rise. Remember the narrative last July when the Fed did not begin easing at that FOMC meeting was that the Fed was waiting too long to lower rates. Now after 100 basis points of easing the narrative is becoming, why is the Fed cutting rates at all?

As for stocks, by the close the Dow Jones Industrial Average was down 178 points to finish the day at 42,528. The S&P 500 was down 66 points to close at 5,909. The Nasdaq Composite Index was down 375 points to close at 19,489. Gold was up $18 to trade at $2,665 per ounce, while oil was up $.69 to trade at $74.25 per barrel WTI.

The action we have seen to start the year strikes me as what we just might see for most of 2025. A lot of crosscurrents and misdirection causing stocks to vacillate back and forth. It’s early but I don’t think the bulls, nor the bears feel like they have a handle on things.

Have a nice evening everyone.

Jim