FALLING BOND YIELDS HAVE BEEN GOOD FOR THE NASDAQ AND GOLD -- BUT BAD FOR CRUDE OIL
BONDS YIELDS VS. THE NASDAQ...The direction of bond yields has had an impact on various intermarket relationships. One of the them is the Nasdaq market. The main point of Chart 1 is to show that falling bond yields have been good for the Nasdaq market so far this year. Since we're talking about relative Nasdaq performance, we're using ratio analysis. The green bars in Chart 1 show the trend of the 10-Year Treasury yield. The solid black line plots a ratio of the tech-dominated Nasdaq 100 divided by the S&P 500 over the last year. The chart shows that both lines have mostly trended in opposite directions. Last August, for example, a sharp upturn in bond yields corresponded with a peak in the relative QQQ performance which continued through the end of the year. Bond yields peaked last October which marked a bottom in the entire stock market. On a relative basis, however, the QQQ/SPX ratio turned up at year's end with a lower peak in the TNX (see arrows). Since then, falling bond yields have coincided with a sharp upturn in the Nasdaq/S&P 500 ratio. That's due mainly to strong relative performance in technology stocks which are often viewed as safe havens when falling bond yields suggest a weakening economy.
FALLING BOND YIELDS BOOST GOLD... Chart 2 shows a strong inverse relationship between the 10-Year Treasury bond yield (green line) and the price of gold over the past year. An upturn in bond yields in early 2022 coincided with a major peak in the price of gold (see arrows). Those trends were reversed during the fourth quarter when a peak in bond yields pushed gold prices sharply higher. Those trends are still intact with gold prices approaching a record high this past week. Those trends show that bonds and gold have attracted a lot of safe haven money in 2023. A weaker dollar has also contributed to gold buying. [Footnote: A bounce in bond yields on Friday caused profit-taking in gold].
FALLING BOND YIELDS HAVE HURT OIL... The relationship between bond yields and crude oil isn't as strong . But a case can be made that falling bond yields this year have had a negative impact on oil. Chart 3 shows bond yields and the price of oil falling together over the last six months. The reasoning there is that falling bond yields and crude oil both suggest economic weakness. The black bars show WTIC crude oil touching the lowest level since 2020 while the green line shows the 10-Year yield testing its low for the year. Note: Bond yields and crude oil bounced together on Friday.
STOCK INDEXES END WEEK ON A STRONG NOTE... Chart 4 shows the S&P 500 bouncing off chart support at its late April low and 50-day moving average. The SPX is being led higher on Friday by energy, technology, and financial stocks. A rebound in regional banks on Friday lent some support to the entire market, while technology stocks continues to show market leadership. Chart 5 shows the Invesco QQQ Trust nearing the highest level since last August. It shows the Nasdaq 100 still leading the rest of the market higher. Technology was the week's strongest sector and energy the weakest.
