The S&P 500 managed to rise by about 50 bps on the day, although almost all of the gain came in the final 30 minutes. The rally into the close looked fairly fabricated, controlled, and out of the ordinary. It appeared very mechanical and algorithm-driven. There was about $2 billion to buy on the S&P 500 going into the close, which may have contributed to the move, but it would not be surprising to see it erased tomorrow. I have nothing further to add.
Rates fell sharply on the day, with the 10-year yield dropping by 4 bps to finish at 4.22%. This followed a lighter-than-expected JOLTS report, alongside downward revisions to the June figures. Tomorrow brings ADP and ISM Services, with the jobs report due on Friday. Tension will be building, and the bond market is likely to see increased volatility over the coming days. The 4.2% region has acted as support for some time, and that has not changed—at least not yet.
Rates in Japan continue to inch higher, with the 30-year yield recently breaking out of a consolidation and resistance zone—just in time for the auction on September 4. It is hard to say where the 30-year may head in the short term, given that it has now broken out to all-time highs. However, a back-of-the-envelope extension from the recent consolidation suggests a move to around 3.4% in the coming days, up from the current 3.29%.
Rising rates in Japan and falling rates in the US mean spreads are narrowing. Today, the US 5Y–JGB 5Y spread fell to 2.58%, its lowest level since August 2022. Yet USD/JPY continues to tread water. Obviously, more is at play here than just the spread, but it seems significant that the spread is dropping while the yen is not strengthening. From what I can tell, the only other time this occurred since 2022 was in the summer of 2024.
Mike
Glossary
ADP – A private payroll report released monthly by Automatic Data Processing, often seen as a precursor to the official jobs report.
Algorithm-driven – Refers to trading activity directed by automated computer programs rather than discretionary human decision-making.
Basis points (bps) – A unit equal to one-hundredth of a percentage point, commonly used to measure changes in interest rates or yields.
Consolidation – A market phase where prices trade within a range, indicating a pause before a potential breakout in either direction.
ISM Services – A monthly economic survey from the Institute for Supply Management measuring activity in the US services sector.
JOLTS report – The Job Openings and Labor Turnover Survey, a monthly report by the US Bureau of Labor Statistics that tracks job vacancies, hires, and separations.
Resistance zone – A price level or range where selling interest tends to prevent an asset from moving higher.
Spread – The difference in yield between two bonds or markets, often used to assess relative value or capital flows.
Support – A price level where buying interest tends to prevent an asset from moving lower.
USD/JPY – The exchange rate between the US dollar and Japanese yen, often influenced by interest rate differentials and capital flows.
Yield – The return on a bond expressed as a percentage of its price, reflecting the bond’s interest payments relative to its market value.
Disclosure
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.