Stocks rose to kick off a holiday-shortened week on Monday, but the bond market and the U.S. dollar will likely need to cooperate for the equities rally to resume in smooth fashio
Stocks rose to kick off a holiday-shortened week on Monday, but the bond market and the U.S. dollar will likely need to cooperate for the equities rally to resume in smooth fashion, a closely followed market watcher said Monday.
The U.S. dollar and Treasury yields both extended their recent rise Monday, trading at levels that don’t do stock-market bulls any favors, analysts said. Both the dollar and yields soared last Wednesday after the Federal Reserve signaled it would deliver fewer interest-rate cuts in 2025 than policymakers previously anticipated.
See: How this Treasury-market dynamic could lead to the next big leg lower in stocks
The 10-year yield
TMUBMUSD10Y
reached its highest level since late May, while the ICE U.S. Dollar Index
DXY
hit its highest in more than two years. Yields move opposite to bond prices.
Both yields and the dollar pulled back on Friday after a key inflation reading sparked relief, but were on the rise again Monday. The 10-year Treasury yield saw a 7.2 basis point rise to 4.594%, its highest finish based on 3 p.m. Eastern time levels since May 29, according to Dow Jones Market Data. The dollar index, which measures the currency against a basket of six major rivals, rose 0.4% to trade at 108.09. The DXY on Friday hit a high of 108.54, its loftiest since November 2022.
The dollar is a “slight” headwind and the 10-year yield a “mild” one at recent levels — but those will become more of a problem the higher they go from here, said Tom Essaye, founder of Sevens Report Research, in a Monday note.
Read: A hawkish Fed amid more dovish global central banks is bullish for U.S. dollar next year
Stocks managed to withstand those headwinds Monday, albeit in thin preholiday trading conditions. The Dow Jones Industrial Average
DJIA
erased a decline ahead of the closing bell to finish with a gain just shy of 100 points, or around 0.2%. The S&P 500
SPX
rose 0.8%, lifted by chip stocks, while the tech-heavy Nasdaq Composite
COMP
gained 1%.
Major indexes suffered losses last week, and the Dow and S&P 500 remain in negative territory for the month. The S&P 500 is on track for a stellar 2024 gain of more than 25%, however. The stock and bond markets close early Tuesday and will be shut Wednesday for Christmas Day.
Meanwhile, the yield curve — a line measuring yields from the shortest to the longest Treasury maturities — last week fully uninverted, strategists noted. In other words, it’s returned to its normal shape, where long-dated yields are higher than short-dated ones. It ends a lengthy period where some long-dated yields were trading below short-dated yields.
Marketwatch
