On Wednesday, I posted an article highlighting the spike in the yield curve as treasuries sold off. Financial markets are forward thinking, and although the economic environment is not quite at the point of self-sustaining stability, the market sees it in the near-term future.
There may not be a stopping point to easing; more likely, the Fed will gradually wean markets off. They may slow bond purchases as employment picks up, and eventually let it diminish indefinitely. Next week is the Nonfarm Payrolls data, which should be indicative of the Fed's next move, and thus be cause for a pickup in equity market volatility. (In the charts below, the blue line is the 50-day moving average and the red is the 200-day moving average.)
iShares Dow Jones Select Dividend Index Over Guggenheim S&P 500 Equal Weight
The next pair measures financial market volatility across the world. The pair is CurrencyShares Australian Dollar Trust
The pair has dipped lower as markets have broadly sold off and now stands at a lower level of support. U.S. GDP numbers and employment data next week should weigh heavily on this pair and determine whether global economic sentiment picks up or declines.
The last pair measures the Vanguard Total World Stock Index ETF
Along the same lines, financial stocks could get a boost from higher interest rates. With much of their business tied into rates, the return of a steeper yield curve could be a catalyst for a financial sector breakout.
Short-term volatility looks to be an issue, which is negative for equities, but as investors see a brighter economic horizon, this pair should get a boost higher.
Vanguard Total World Stock Index ETF over iShares Barclays 20+ Year Treasuries Bond
At the time of publication the author had no position in any of the stocks mentioned.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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