The Stock/Bond Signal and Nvidia's Relevance

Very interesting action in the markets lately… I.e., bonds have been rallying bigly while stocks are, in chart-parlance, failing their recent breakout to new heights while the SP500 curls beneath its technically-significant 50-day moving average (green line below):

This morning’s bounce comes ahead of Nvidia’s earnings announcement due after today’s close… No doubt a good report there could do wonders for the index! A bad report, well… not so good!

As for bonds, here’s TLT (long-term treasuries) smashing above its 50-day moving average as interest rates have taken a notable breather:



Here’s the 10-year treasury yield:



Now, for the past many months I’ve been pointing out on the weekly videos that down moves in yields – given present dynamics – equate to up moves in equities… Well, at least in the very short-run, that relationship has broken down notably!

So what gives?

In a nutshell, yes, stocks love lower interest rates, but they hate uncertainty; while treasuries – being a safe haven – revel in it!

I.e., when rates are falling due to fear that the economy is weakening amid heightened geopolitical uncertainty, that’s good for bonds... But the rising prospects for lower corporate earnings hitting a stock market that’s pricing in nothing of the sort, well, that’s more than enough to offset the typical tailwind that comes with lower rates.

Again, Nvidia’s earnings this evening are short-term relevant… So, if it does its thing and beats expectations – and their CEO does his thing and pumps the outlook – the upside potential after the past few days could be violent… If, however, they miss, and Mr. Huang loses his pump, we – all else equal – can anticipate more pain for equities to come.

Stay tuned…