Interest rates are staging a massive breakout... We can thank the Federal Reserve for that. It chose to hike rates once again in July to as high as 5.5%. That's a level not many folks would've thought possible just a few years ago.
Editor's note: Our friend Brett Eversole is back again today...
By now, regular Chaikin PowerFeed readers know all about Brett. He's the editor of True Wealth and its related publications at our corporate affiliate Stansberry Research.
Like us, Brett always has his finger on the pulse of the markets...
To that point, he first shared the following essay in his free DailyWealth e-letter last Thursday. As you'll see, he believes we should keep our eyes on one critical indicator...
We Might've Just Seen Peak Interest Rates
By Brett Eversole, editor, Stansberry Research
Interest rates are staging a massive breakout...
We can thank the Federal Reserve for that. It chose to hike rates once again in July to as high as 5.5%. That's a level not many folks would've thought possible just a few years ago.
Other interest rates are soaring as well. The 10-year U.S. Treasury yield is up around half a percent since mid-July. And it recently hit its highest level since 2007.
But according to one measure, sentiment toward 10-year bonds is far too negative. That means the uptrend in yields could soon reverse. And when it does, the decline could be big.
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For most of the 2010s, investors were smart to ignore interest-rate markets. Fed policy kept interest rates near zero for most of that time. So there just wasn't much to think about.
That isn't the case today, though. Interest rates are up in a big way. You can now earn a solid yield on your cash. And suddenly, it's crucial for investors to pay attention...
You see, these markets operate just like stocks when sentiment gets out of whack. When everyone expects one outcome, the opposite scenario usually plays out.
The 10-year Treasury yield recently broke out to 4.3%, which took yields to a 16-year high. And not surprisingly, futures traders expect rates to soar even more.
That means traders are incredibly bearish on government-bond prices right now. (Remember, bond prices and yields move in opposite directions.) We can see this sentiment through the Commitment of Traders ("COT") report...
The COT is a weekly report that shows what futures traders are doing with their money in real time. Like most sentiment indicators, it tells us when a market is in an extreme state and primed for a reversal.
Today, futures traders are betting on higher 10-year yields – and lower bond prices – in droves. The chart below shows 10-year Treasury yields versus the COT for those bonds. Take a look...
You can see that the recent low is by far the most bearish these folks have been in the past decade.
That sentiment low happened in May. But now that 10-year yields have surged to a 16-year high, the COT has already gotten darn close to that level once again.
The chart also shows that similar setups led to huge declines in 10-year yields in the past...
The first instance was in 2017. Futures traders were the most bearish on bond prices they'd been in years. Then, 10-year yields fell from roughly 2.5% to about 2% in less than a year.
The same thing happened in 2018. The COT hit a rare sentiment low. Rates peaked about a month later. And then, a massive downtrend began. Overall, 10-year yields fell from nearly 3.25% to below 1% in less than two years.
This year, we're in a similar situation...
Speculators are betting that rates will keep surging. That's not surprising, given the massive move higher we've already seen.
But these traders won't be right for long. History shows a reversal is likely from here.
Now, interest rates are still in an uptrend today. So it wouldn't be smart to bet on a reversal right away. We need to wait until rates begin to fall.
Once they do, though, the decline could be huge. So make sure you watch 10-year Treasury yields closely in the coming weeks.
Good investing,
Brett Eversole
P.S. At 8 p.m. Eastern time TONIGHT, I'm holding an online briefing on what's next for stocks. That's especially important to know right now...
You see, most of the financial media's stories about this bull market are simply dead wrong.
If you've been sitting in cash – or if you're worried that you've already missed out on the biggest gains – then I hope you can join us. Sign up for your FREE spot right here
Market View
Major Indexes and Notable Sectors
# Hld: Bullish Neutral Bearish
Dow 30
+0.25%
12
14
4
S&P 500
+0.66%
137
254
107
Nasdaq
+1.17%
47
43
9
Small Caps
+0.26%
430
1038
464
Bonds
-0.72%
Consumer Discretionary
+2.69%
13
32
7
— According to the Chaikin Power Bar, Small Cap stocks have become somewhat more Bearish than Large Cap stocks. Major indexes are mixed.
* * * *
Sector Tracker
Sector movement over the last 5 days
Discretionary
+2.13%
Communication
+1.30%
Utilities
+1.28%
Staples
+0.25%
Energy
+0.15%
Health Care
-0.45%
Financial
-0.71%
Real Estate
-0.97%
Information Technology
-1.42%
Materials
-1.99%
Industrials
-2.89%
* * * *
Industry Focus
Retail Services
22
43
14
Over the past 6 months, the Retail subsector (XRT) has underperformed the S&P 500 by -17.20%. However, its Power Bar ratio, which measures future potential, is Strong, with more Bullish than Bearish stocks. It is currently ranked #11 of 21 subsectors and has moved up 1 slot over the past week.
Top Stocks
LAD
Lithia Motors, Inc.
MUSA
Murphy USA Inc.
GES
Guess?, Inc.
* * * *
Top Movers
Gainers
TSLA
+10.09%
CVS
+4.42%
QCOM
+3.90%
KVUE
+3.62%
MTB
+3.60%
Losers
RTX
-7.88%
SJM
-7.01%
NWL
-6.04%
VFC
-6.01%
MRO
-4.21%
* * * *
Earnings Report
Reporting Today
Rating
Before Open
After Close
VMW
CNM
No earnings reporting today.
Earnings Surprises
ORCL Oracle Corporation
Q1
$1.19
Beat by $0.04
AVO Mission Produce, Inc.
Q3
$0.01
Beat by $0.02
CASY Casey's General Stores, Inc.
Q1
$1.49
Missed by $-0.13
* * * *
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