David Hunter
Chief Macro Strategist at Contrarian Macro Advisors
US regional banks look like a long as yields should be near a peak, with bonds and regional banks both halting their slide today. The trade rests mostly on a five-step long signal: price closed a gap, held the 50-day line, and indicators look similar to the March bottom. x.comÂ
Small caps, utilities and regional banks look set for an oversold catch-up rebound as market breadth improves in early October. The broad market should make new highs led by semiconductors and big tech, with small caps and sectors previously held down by rates catching up. x.com x.comÂ
Regional banks rejected a double top at their 4Q21-1Q22 peak, and pumping them now is market foolishness. Rising yields, falling high-yield and investment-grade corporate bonds, and collapsing real estate all argue against owning them. x.comÂ
Rocket Companies is set up to benefit from a short-term bond bounce that would bring down long-end yields. Pension funds' quarterly rebalancing this week should buy bonds and sell stocks, and a 70% priced probability of an October hike leaves room for a bounce. A dovish PCE surprise, which BofA said might come from a methodology change, would add support. Rocket's weekly chart shows a good entry point, and the MOVE bond-volatility index has started to retrace, a good sign. x.com x.comÂ
The secular rise in Treasury yields will likely last longer and go further than most expect, making bets on a yield low premature. Investors tried to time the low in yields from the early 2000s and were 20 years early. The most rate-sensitive sectors, homebuilders, mortgage names and private equity, where smart money would show up first if a turn were near, show no hint of accumulation. x.com x.comÂ
Bonds may be the biggest bubble of our lifetime as the 39-year bond bull market looks over, with the 10-year Treasury yield approaching 5%. From the 1981 peak near 15% to the 2020 low near 0.5%, falling rates became the assumption that passive investing, long-duration growth and the 60/40 portfolio were built on. Yields have moved in multi-decade rises and falls before, and the unwind has barely started, though history is not a timetable. x.com x.com x.com x.com x.com x.comÂ
Long-dated Treasuries could rally after a Fed hike, because a hike could lower or at least cap the 10-year yield more than any other intervention at this point. The 10-year yield bottomed near 3.66% when Powell started cutting in September 2024 and has not returned there since. @lord_fed's point that the long end may rally after the hike, having sold off through the 2024 cutting cycle, holds. x.com x.comÂ
Blackstone's private credit boom may be ending now that the 10-year/3-month Treasury spread has reached +100bps. On the chart, the shares retested their 4Q21 level and made a false move above the monthly 50-period moving average, so a sharp drop is the setup to brace for. x.comÂ
The US large-cap correction isn't over until interest rates top and bonds bottom, which hasn't happened yet. The summer 2023 S&P 500 correction ended right when bonds bottomed in October, with TLT trading massive upside volume, and there is no sign of that now. Higher rates keep pressuring real estate, where lots of money has been trapped since 2022, a possible source of downside dislocation, and an aggressive further rise in rates could bring a panic bottom. x.com x.com x.com x.com x.com x.comÂ
Long-dated US Treasuries show textbook capitulation, suggesting the 10-year yield is near a temporary top. Long bonds have closed below the lower Bollinger band for five straight days on rising volume, with implied-volatility rank at an extreme, a sign of extremely crowded shorts. High rates do little to restrain highly profitable companies such as big tech and semiconductors. x.comÂ