The SP had been idling in place with prices between 2560 and 2600 for more than a week. During that week, we’ve discussed the risks associated with a break above 2600. Simply put, if stocks managed to break above their nearest notable technical ceiling, perhaps bonds would do the same. In that case, we were looking at yields of 2.75% as the correlated ceiling.
Now today, the SP closed at 2610 and 10yr Treasury yields not even above 2.72%. To be fair, when stocks broke that ceiling this morning, bonds definitely came along for the ride. But everything played out on a smaller scale, as if both sides of the market were suppressed by some larger uncertainty.
While there were quite a few brexit-related headlines in the news, we’d be far better served by focusing our attention on the government shutdown as the source of uncertainty. It’s arguably helping keep any underlying stock market bullishness under wraps and at the same time preventing bonds from losing their cool.
One of the issues stemming from the shutdown is the unavailability of quite a bit of economic data. We saw some evidence of that this morning as bonds reacted to data that doesn’t normally move the needle, simply because they don’t have much else to go on. While it’s true that NFP should remain intact (that department is funded), markets aren’t accustomed to building trade strategies around an incomplete economic picture. This is especially important at a time where Fed policy is in a state of flux depending on the realities of the data (the data that’s not all currently available!).