In Case You Missed It: Key Charts of the Week:

By Mark Masterson on January 17, 2025

It has been said “a picture is worth a thousand words.”

Bond yields are on the rise.

The below chart shows the bond market (10 year treasury yield) dating back to the 1800’s.

The decline from the early 1980’s into 2020 was a 40+ year bond bull market.  (as the blue line falls – rates are coming down.  As rates fall, bond prices rise)

It is increasingly clear that we have started the next wave higher for yield.

Keep in mind – it is not a straight line. There are ebbs and flows both up and down along the way – but we are now entering the 6th year of the third great bond bear market of the last 240 years according to Bank of America.

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Here is a look at the 10 year treasury yield…..

Clearly it is on the move higher.

Many suspect that if it hits 5%, it will be very painful for global markets.  Its at 4.8% now.

Why is it rising?

It could be due to the Fed moving to a more hawkish tone on rate cuts.

It could also be the recent rise in inflation pressures – notable is oil over the past few weeks.

It could also be due to the debt ceiling return and the potential for an accident in the bond markets.

It’s hard to determine the cause, but the effect is clear….

The commodity index has been rising – most likely as a reflection of inflation pressures…..

Even oil is rising now – but still has a lot to prove if the long rangebound move is ending…

The dollar has been pressing ever higher as you can see below.  It’s rising in anticipation of Trumps policies – in particular the tariff threat and its impact on foreign currencies.  (they fall, the dollar rises)

It is overbought and is due for a pullback.  Should it fall for a few weeks, markets should bounce.

The challenge will come when it hits the top of the box. 

Will it fall back into the channel?

Will it just retest the top of the channel and then head higher?

We’ll wait and see.

Same holds for bond yields.

Below is the 10 year treasury yield.  Pressing higher almost daily.

It too is overbought.

Like the dollar, it should pull back soon.  If it does, the real story happens when it hits that blue line.

Test and continued rally – or break down?

This was from yesterday…….

The dollar has been pressing ever higher as you can see below.  It’s rising in anticipation of Trumps policies – in particular the tariff threat and its impact on foreign currencies.  (they fall, the dollar rises)

It is overbought and is due for a pullback.  Should it fall for a few weeks, markets should bounce.

The challenge will come when it hits the top of the box. 

Will it fall back into the channel?

Will it just retest the top of the channel and then head higher?

We’ll wait and see.

Same holds for bond yields.

Below is the 10 year treasury yield.  Pressing higher almost daily.

It too is overbought.

Like the dollar, it should pull back soon.  If it does, the real story happens when it hits that blue line.

Test and continued rally – or break down?

This morning we are seeing both of the above charts head lower.  The key test will come when they hit those blue lines….

Great chart below from Doubleline showing how the 10 year treasury yield and US dollar have been in lockstep over the past two years.

That continues today as they both fall.

Below chart was interesting from Doubleline yesterday.

It shows all  of the Fed cutting cycles since 1984.  You can see that this cutting cycle is an outlier.  The red line is the 10 year Treasury bond.  It has never fallen after a cut. 

It is this time.

This time is different?

Interesting look at the 10 year treasury yield and oil…..

They have been moving together as well.  With the rise in bond yields, is oil going to rise further?  OR – is the bond yield going to decline towards the oil price?

I was looking at a few other charts yesterday.

I take note that commodities are breaking out of the sideways consolidation. 

If this holds – it suggests we may get a strong rally from commodities.

Short term market sentiment is nearing oversold – which also helps markets bounce if the dollar and bond yields fall.

See below the red line is the “dumb money” sentiment.  It is nearing extreme pessimism short term.

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The jobs data today was on the weaker side…..Initial claims tick higher:

• Initial jobless claims for week to 11-Jan of 217K a bit above consensus 213K, while last week’s revised to up 2K to 203K.
• Continuing claims for week to 4-Jan of 1.859M below consensus 1.880M, while prior revised up slightly to 1.877M from 1.867M.

A key to watch under Trum is how the DOGE will handle government jobs.  Communication has been clear that they view many government jobs as superfluous.

How about these stats:

• US government jobs hit a record 23.5 MILLION in November, rising for the 43rd consecutive month.
• Government jobs have risen by 2 million over the last 4.5 years.
• The growth rate’s 18-month moving average was 2.7% year-over-year, the highest in at least 45 years.
• In previous economic cycles, such a rapid increase in government jobs has usually occurred before recessions.
• Meanwhile, full-time private sector jobs dropped 1.8 MILLION year-over-year in November.

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DOGE will also have to deal with the deficit spending under Biden.  More stats:

• The first quarter of FY 2025 produced a deficit of $710.9 Billion.
• That’s $200B more than the first quarter of fiscal 2024, or a 39% increase YoY.
• We’re running a ~$3 TRILLION annual deficit.

Like I said above – execution will be the key to success.

One positive for Trump is the optimism around changes.  Small business optimism continues to surge….

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Update on the 10 year Treasury yield….

It did start to break lower – as I suspected it might.

The test will come at that highlighted spot.

Rates broke out above that blue line which was resistance.  It’s very common for a breakout to be tested from the other side.  So – rates should slide lower into that blue line.

From that point – we will know more.

If they rally off of that, watch out.  Should that happen, rates are probably heading over 5% and will cause problems.

If it breaks down, that will signal a false breakout and should be supportive for policy and risk assets.

We’ll need to watch, wait and see.

The dollar is the same as above.

Expect a retest of the top part of the channel. 

That highlighted spot is important -for all the same reasons as the 10 year treasury yield.

Looks like companies want to keep buying back stock…..

On track to be a record.

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Rising yields are pressuring mortgage rates.  The 30y mortgage rate has crossed back above 7%

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I’ve shown the “Buffett Indicator” which shows the total market cap versus GDP.

Below is a similar metric, but only showing the market cap of the largest 50 stocks to GDP.

The Market Cap of the largest 50 stocks relative to GDP is at 110%, the highest level in history, surpassing the peak of the Dot Com Bubble and the Global Financial Crisis

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It’s just a matter of time…..

Below updated through year end shows the Goldman commodity index compared to stocks.

When falling, stocks outperform commodities.

When rising, commodities outperform stocks.

We have just been through the longest period of stock outperformance in history.  Will it last?

I don’t think so.  Its time for commodities to start the move higher.

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