Dan talks about the reverse head and shoulders pattern in the S&P 500 index. On Monday, the market broke above the right shoulder which signals further upside. Recent M&A activities of IBM and other Tech names have helped this sector break to the upside as well. Dan remains cautiously optimistic. The technicals certainly look good, but Dan warns about a shift in expectations. He believes the market has priced in a Republican victory this fall. Any deviation to that could jeopardize the rally.
One of the questions I get most from clients is how to generate yield when the Fed is on hold with rates at zero. For a while many defensive clients were content receiving their 3% annual yield from Treasury bonds, but the Fed’s most recent meeting minutes shows that the Fed’s pace of bond buying may soon slow. While I do not think tapering is likely before year end (unless economic data accelerates significantly) the bond market is forward looking and already beginning to price tapering in. Smaller Fed purchases of Treasury bonds will mean that bond yields go up and bond prices go down. Bonds have been in a multi-year bull market, and we may now be on the cusp of a multi-year bear market. The most important indicator to watch is the 10-year yield, which cracked the 2.10% level this week for the first time in a year. If we continue to hold above 2.05% in June, the top is likely in for bonds and borrowing rates will be on the rise for everyone, including the US Treasury. So, how am ...
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