05/22 - Bond Markets Yell Fire, Stocks Check the Thermostat (Market Update)
Rising yields, deficit fears, and why this panic might be short-lived.
Current Level S&P500: 5861 | Near-Term Trend: Bearish (strengthening)
Key Levels to Watch: Resistance @ 5930, 5866 | Support @ 5830, 5780
The stock market is opening flat as the Trump tax bill clears the House in a victory for Republicans. Technical momentum indicators are continuing to confirm a near-term pullback at these levels, as RSI hit overbought conditions as of May 19. The last time this happened (Dec ’24), we saw a 3.6% pullback over a 12-day period.
The 30-year Treasury yield is about to hit its highest level in 18 years after a Treasury auction suggested concerns about unsustainable government deficits may be eroding demand for federal debt. This, combined with the Fed’s cautious approach to interest rate cuts, will continue to put pressure on the stock market in the near term.
Stocks are Built Different
Although the bond and stock markets impact each other, the stock market is built differently. More government spending will undeniably have long-term impacts on the federal deficit, but in the short term, it stimulates the economy—especially if it’s focused on infrastructure, defense, or energy. It can boost GDP, hiring, and corporate earnings, even as the bond market screams inflation risk.
Stocks care more about earnings and future growth expectations—all of which should rise from fiscal stimulus. Historically, when Congress spends big (especially outside of crisis moments), equities often shake it off after a short-term wobble.
If History is Any Indication…
Some useful comparisons:
2021 American Rescue Plan (Biden): $1.9T stimulus. Yields jumped, but the S&P 500 surged that year.
2018 Trump tax cuts: Markets briefly dipped over deficit concerns, then rallied as earnings soared.
2011 Debt Ceiling Crisis: S&P downgrade of US debt led to a sharp selloff—but it was short-lived. Stocks recovered within months.
2013 Sequester & Budget Fights: Some initial turbulence, but markets moved higher that year.
Markets don’t love messy politics, but they’re more forgiving than they seem—especially if the final result adds fuel to the economy.
So What Do We Do?
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