The Magnificent Seven advanced about 1.5% yesterday even as 400 S & P 500 companies declined yesterday. The pressure to perform, the fear of missing out, the outright giddiness surrounding these shares believing that these companies are unstoppable and impervious to any type of issues is incredible. This trend will continue until it does not, all unknowing when it will change.
Longer dated Treasuries continued to sell off with some blaming the 8-part Alphabet bond deal as the catalyst.
The market is bracing for the Treasury to fund its massive debt via using short, dated debt amid this unstoppable debt burden coupled by higher long-term interest rates.
Bloomberg writes “Bessent surprised many in the market this year by retaining his predecessor Janet Yellen’s strategy of favoring bills which are shorter dated, after having repeatedly criticized it to fund spending”
Bessent’s Treasury Department has already boosted T-bill auction sizes to record levels climbing past 26%, far exceeding the recommended levels that have existed for many years.
It is believed the Treasury will have some flexibility given QT has ended for Treasuries but not for mortgage-backed bonds. The Treasury will use maturing mortgage backs to buy to Treasuries in an attempt to mitigate the stresses that are emerging in the credit markets.
Many are wondering as to how to reduce long term yields—vital for setting borrowing costs such as mortgage rates—even as the nation’s debt load is climbing unsustainably. Bloomberg writes that around the world demand for the longest dated securities has been “dimming” as debt managers are trimming purchases.
There are few who believe spending and the deficit are not an issue, with many believing a fiscal crisis is all but inevitable if reforms are not immediately taken, the question is as to when not if. Similar to the unrelenting climb of the Magnificent Seven, if no action is taken there may be a dramatic change, but no one knows the timing of such.
What will happen today? Will today’s elections in VA, NJ and NYC impact trading? As noted several times, if the outcome is considerably different than the polls, the odds of broad-based conclusions may increase.
Last night the foreign markets were down. London was down 0.57%, Paris down 1.28% and Frankfurt down 1.47%. China was down 0.41%, Japan down 1.74% and Hang Seng down 0.79%.
Dow and NASDAQ futures are down 0.5% and 1.5% on AI valuations. Palantir, which is not one of the Magnificent Seven but is an AI darling, is down about 7% even though its results exceeded all expectations, but the earnings were not “quite enough.” The 10-year is up 5/32 to yield 4.10%.
