Expectations and TNX - December 8, 2023

• I posted this chart recently, and it might be the most important chart in finance today, the US Ten Year Treasury Yield (TNX). Everything in the US is priced off of the TNX, or the cost structure is affected by the TNX etc. 

• We don't invest based on predictions, but it is helpful to have a working mental framework for expectations around economy and markets. Here is what I think is happening. I want to get this chart out today, because it may have already started.

• EVERYONE in the world got on the same side of the trade; that inflation had peaked, so interest rates were coming down. Good for bond prices. In the last update I suggested that rates may increase a bit, and the stock market pause as a result. Note the relative inverse correlation between the TNX and the Nasdaq 100 below.

• So, naturally the TNX continued a bit lower first, but I expect my expectation is exactly what will happen and the last bar in the chart below (blue arrow), shows the TNX dropped to just above 4% and has reversed to 4.258% this week, as of this morning.

• Markets need to have their fun with us, so I suspect it will bounce a bit higher, then continue lower getting everyone back on the "interest rates/inflation lower" train. But my models suggest that somewhere around 3.5% will be the lowest it gets; just an estimate.

• If I'm correct on that, then the slight correction in the Nasdaq 100 (and indices) still happens, right around here, but it ends up being limited. As TNX resumes lower, stock markets head into the strongly seasonally positive turn of the year and go higher into Q1. I have further expectations beyond that, but I won't get carried away with the predictions.

• My views are based on sentiment (for bonds and stocks) technical trend expectations and my view that we are in a new era of broken money, fiscal dominance and a re-acceleration of US money supply expansion in 2024 as the Fed helps the Treasury finance ~ $10 Trillion in US debt next year. 

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