Before the Open

The S&P is oversold short-term, but it’s not even remotely oversold on an intermediate-term basis…and the divergence between the bond & stock market is still a VERY large one. Thus, any mild decline in bond yields is not going to help the stock market for very long.

In our July pieces, we showed how whenever an inverted yield curve moved back into positive territory over the past 50 years, it was actually a very BAD time for the stock market.

The stock market is getting somewhat oversold, but it still has further to go before it reaches the kind of level we’ve seen at important lows of the past five years. So, although it could see very short-term bounces at any time, we think the stock market has further to fall.

Remember declines that take place in the fall usually bottom in October. So don’t fear this decline. Instead, embrace it…and look for an opportunity to take advantage of it if/when we get a “capitulation” move.

The most important development of the past six months has been the WIDE divergence between the bond & stock markets. With investors coming to believe that the “higher for longer” narrative for interest rates is for real, the divergence will be resolved with a drop in stock prices.