Stocks Soar While Bonds Signal Economic Weakness

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Stock Market,Bond Market,Federal Reserve

The stock market is booming with record highs for the S&P 500 and Dow Jones Industrial Average, fueled by a recent Federal Reserve interest rate cut. However, bond markets indicate a different story, suggesting potential economic weakness ahead.

The stock and bond markets are telling two different stories. The S & P 500 and Dow Jones Industrial Average posted record closing highs on Monday, adding to the momentum seen since the Federal Reserve cut interest rates last week. For the third quarter, the S & P 500 has popped 4.7%, while the Dow is higher by 7.7%. That performance paints a picture of a booming economy and soaring corporate profits under a Fed regime of lower interest rates.

"If the cut cycle coincides with an economy that stays strong, then that is a great back drop for equities. If the economy rolls over, then that overwhelms the cut cycle. This cycle we don't think will be different in that the economic and earnings direction will be key for the direction of stock prices." Earlier this month, stocks sold off and Treasury yields dropped as labor market data pointed to an economic slowdown.

 

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