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Bond Market Weakness Continues to Hobble Stocks

Anthony Mirhaydari

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

U.S. equities finished quietly mixed on Tuesday, recovering from a steep intraday loss related to the reappearance of some “Trump + Russia” headline risk, this time concerning a pre-election meeting by one of his sons. But as GOP Senate Majority Leader Mitch McConnell announced that the August recess would be curtailed to allow more time on the healthcare reform bill, stocks rebounded to end the day flat.

Bond Market Weakness Continues to Hobble Stocks

In the end, the Dow Jones Industrial Average was unchanged, the S&P 500 lost 0.1%, the Nasdaq Composite gained 0.3%, and the Russell 2000 gained 0.3%. Treasury bonds were mostly stronger, the dollar lagged, gold gained 0.1% and oil reversed early weakness to gain 1.4%.

Volume was light at 81% of the NYSE’s 30-day average while breadth was mixed, with 1.1 advancers for every decliner. Energy led the way with a 0.5% gain while financials were the laggards, down 0.7%.

Western Digital Corp (NASDAQ:WDC) gained 2.8% on reports it is aggressively pursuing Toshiba’s chip unit. Recent IPO Blue Apron Holdings Inc (NYSE:APRN) crashed another 12.3% after being initiated with a sell by Northcoast Research, noting severe cost challenges and a competitive landscape. Snapchat parent Snap Inc (NYSE:SNAP) fell 9% after being downgraded by Morgan Stanley on ad product that is below expectations.

Conclusion             

With stocks once again in stasis, all eyes are on Federal Reserve chairman Janet Yellen’s testimony to Congress on Wednesday.

The Fed has been in focus because of a recent shift towards policy hawkishness, with three-quarter-point rate hikes since Election Day, another promised before the end of the year, and guidance that a rolloff of the Fed’s $4.4 trillion balance sheet could start as soon as September.

Why the rush? Because since the rate hike campaign started in 2015, financial conditions have actually eased, GDP growth has slowed and wage inflation hasn’t materialized.

Yellen will get a chance to explain; which is especially poignant given that a “Taylor Rule” analysis by the Atlanta Fed shows rates should already be near 3% — more than double what they are now.

Watch the long-term Treasury bond market for a reaction to her testimony, with the iShares Barclays 20+ Year Treas.Bond (ETF) (NASDAQ:TLT) testing key uptrend support for its four-month channel. A breakdown would violate the 200-day moving average and risk a decline back to the December-March lows.

Check out Serge Berger’s Trade of the Day for July 12.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.

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