$SPX Held the Range as Yields Finally Reversed
The stock market experienced choppy, indecisive price action in the $S&P 500(.SPX)$ and $E-mini S&P 500 - main 2612(ESmain)$ struggled under the weight of surging bond yields. For most of the week, the 10-year Treasury yield surged as high as 5.35% early Thursday to set a fresh 24 year high, while the 30-year yield touched 5.62%, the highest level since 2002. This bond sell-off was fueled by a combination of fears that a resilient economy would keep interest rates higher for longer and escalating conflict involving Iran.
Mid-week data kept investors on edge by presenting a mixed economic picture. The August Personal Consumption Expenditures (PCE) price index showed cooling inflationary pressures at 3.4% year-over-year, while second-quarter GDP was revised upward to a robust 2.2% annualized growth rate, increasing the odds of a rate hike.
The narrative flipped on Friday following the release of September’s nonfarm payrolls report. U.S. employers added just 29,000 jobs, significantly missing the Dow Jones consensus estimate of 84,000. While the unemployment rate ticked up to 4.2%. Although this pointed to a slowing labor market, Wall Street welcomed the news as a sign that the Federal Reserve will likely stay on hold in October, triggering a steep retreat in Treasury yields and a major relief rally across the major indices. As of today the probability of a rate hike sits at 20%… one week ago it was at 64%.
During the week, the SPX traded inside a weekly range between 7,709 and 7,609, as a spike in the Volatility Index kept the index below its key weekly level of 7,609. The $Cboe Volatility Index(VIX)$ jumped 10% through yesterday, and I noted in yesterday’s daily update: “There are chances for the VIX to decline tomorrow given today’s intraday reversal.” This daily retrace in the VIX (and subsequent bounce in the SPX) remains part of a broader macro move analyzed yesterday that still warrants caution.
Staying within their respective level ranges, $Invesco QQQ(QQQ)$ oscillated between a Monday bottom of 732 and an upper zone of 752 today, while the semiconductor ETF ( $VanEck Semiconductor ETF(SMH)$ ) traded between 598 and 629. Every single one of these levels was modeled in advance last week, proving how effectively they frame price action and map out where institutional algorithms are likely to react.
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