JP Morgan on surging stocks, crypto – the signs of rally fatigue to watch for

JP Morgan nominate the yield that will signal rally exhaustion is the 5% level on the 10-year Treasury.

• “We think that around 5% the impact of bond yields on equity valuations starts to turn, from positive/reflationary one, into the rising concerns over the sustainability of the upcycle and the increasing risk of accidents”

The background to this is the huge slump in US government prices (i.e. surge in bond yields) following Trump’s win:

• based on expectations that Trump’s immigration and protectionist trade policies would drive inflation higher
• and in turn prompt the Federal Reserve to raise rates, or at least pause in rate cuts

A contributing factor is also the prospect of “bond vigilantes” selling Treasuries on the skyrocketing federal deficit. Ed Yardeni summed this up aspect of the slump in USTs:

• “If the Trump administration runs excessively stimulative fiscal policy, with lots of spending and tax cuts, leading to even wider deficits, I think then that may cause the bond vigilantes to push yields up to levels that create problems for the economy”

JPM do say though that Trump focusing on tax cuts would be positive for stocks.

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Physical bond trading was closed on Monday due to the US holiday.

Equities traded though. S&P 500 update:

This article was written by Eamonn Sheridan at www.forexlive.com.