In the short term, the stock market is overbought, momentum is waning, and volume indicators are falling. This is a warning that the market is ripe for a short-term pullback.Most investors believe the Fed will lower interest rates three times this year. Bond yields, commodities, and relative sector performance suggest that may not be as likely as most people believe.
RSI has been falling over the past four months as the index has risen. Waning momentum suggests increased odds of a short-term pullback.From 1981 through 2021 bond yields steadily declined . Lower yields provided a tailwind for the economy and stocks.Commodity prices are highly correlated with bond yields. Thus, if bond yields are poised to advance over the long term you would expect commodities to perform relatively well.
The CRB peaked in June 2022 after a strong advance. Since then the index has pulled back and now looks like it is breaking out of a consolidation pattern.Below is a one-year chart of the 10-year US Treasury Yield in the top panel. In the lower panels are relative strength charts of a select group of sectors relative to the S&P 500 ETF . Here are my takeaways.