After closing in on the highs for the year, stocks sold off last week as declining commodity prices and weak earnings weighed on sentiment. The S&P 500 Index began the week at 2099 versus the high for the year of 2130 set back in May. The S&P 500 Index declined by 3% during the week.
The other big market move last week was that oil prices fell by 10% as the strong dollar and Federal Reserve (Fed) fears pushed prices lower. The 10-year U.S. Treasury declined by four basis points (bps) for the week to 2.28%, halting the 30 bp increase in rates over the last month.
Over the past few months the correlation between stocks, energy prices, the U.S. dollar and bonds has been very high. I expect this trend to continue for the next few months or at least until we are past the first Fed interest rate hike. I expect the uncertainty to rise over the next several weeks and, with liquidity in the market low, to see heightened volatility.
Look for stocks to test 1950 over the next few weeks and the 10-year Treasury to fall to 2.0%.
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