Market Pulse: A Day of Rising Risk and Falling Yields | September 27, 2024
It’s Friday, September 27th, and futures are showing some strength after a decent inflation report. While the move isn’t huge, small caps, particularly the Russell, are leading the way, up about 1%. Small caps have been struggling recently, but today they’re trying to break out, trading at their highest levels since earlier this week. Bitcoin is also up 1.5%, and bonds are being bought, pointing towards a risk-on sentiment.
The dollar’s drop below 100 points is a big deal. Inflation is cooling, and the market is watching to see if the dip in consumer spending and income will be seen as positive. So far, things are leaning in that direction. There’s also a big rally in bonds, with the 10-year yield down to 3.75%. This is worth watching because big bond rallies haven’t always been great for stocks.
Yields have been trending higher while the dollar has weakened, which has been a notable disconnect. Now that the dollar is breaking down, bonds could follow. The bond market’s been mixed lately, but today we’re seeing a shift lower in yields, which could mean more bond strength ahead.
In tech, keep an eye on semiconductors. Yesterday was a mixed day for the sector, with Micron posting positive earnings but Supermicro facing some negative news. Still, semiconductors rallied, and now the SMH ETF is sitting at its August highs. This is an important level. If the sector can push through, it could be a sign of strength, but it hasn’t quite broken out yet.
Bitcoin made an impressive move yesterday, closing back above the daily 200 moving average. Earlier this week, price tested that level, closing above it on Tuesday but falling below it on Wednesday, showing weak momentum from the bulls. Yesterday’s positive news from China gave Bitcoin the push it needed, driving it back over the 200 MA, which is a good sign for risk-on assets.
Right now, Bitcoin looks like it could move up toward the $68,000 resistance level, which has been tested several times before. It’s likely we’ll see a pullback once it hits that area, followed by a possible breakout. For now, as long as the pivot line holds and price doesn’t drop below it, the bullish setup remains in play.
The Russell’s strength and Bitcoin’s move higher are signs the market is looking for higher-risk, higher-reward plays right now.
The bond rally is significant, especially given the recent back-and-forth. It’s unclear if we want bonds to keep rallying because stocks don’t always respond well to that. Still, with inflation easing, the dollar weakening, and risk assets like small caps and Bitcoin bouncing, the market looks to be positioning for a more positive environment. Keep an eye on how bonds, the dollar, and semiconductors perform as the day progresses.
