It was a rough week to get a read on the stock market. One day, the major equity indexes were down; the next day, they erased those losses and pushed higher; and finally, they finished the week not far from where they started.

Meanwhile, the bond market continues to command attention, and the timing couldn’t be more important. With inflation data coming next week ahead of the September 16 FOMC meeting, investors will be looking for clues about whether the Fed is likely to raise interest rates or leave them unchanged.

It was all about bonds

U.S. Treasury yields remain relatively high, and bond prices have paid the price. Remember, bond prices and yields move in opposite directions.

On the weekly chart of the iShares 20+ Year Treasury Bond ETF (TLT), price is approaching the 78.50 area, an important support level.

The ICE MOVE Index ($MOVE), which tracks volatility in the bond market, isn’t showing signs of rising stress. Notice how the MOVE Index spiked in March 2023, well ahead of the October low in bond prices.

TLT fell below the 78.50 level in October 2023, which is when the 10-year Treasury yield reached its highest level in the last five years. We’re not too far from the 4.90% level, as you can see from the chart of the 10-Year US Treasury Yield Index ($TNX).

What’s especially interesting is that yields haven’t moved meaningfully lower since October 2023. Instead, they’ve been trading within an increasingly narrow range. 

What happens in the bond market rarely stays in the bond market, and the ripple effects can spread across other asset classes. So far, equities have held up well even as the 10- and 30-year Treasury yields approach their highs. The Intermarket Analysis panel on the Market Summary page shows that equities have outperformed other major asset classes over the past year. But that’s no reason to get complacent.

The next week and a half could be especially important for investors. This is a good time to keep the Market Summary page close at hand and add TLT and $TNX to your ChartLists. Just click on the chart images and save them to a ChartList so you can monitor them alongside the broader market.

Next week’s inflation data should give us a little more clarity on the Fed’s next move and perhaps a better sense of what Mr. Market has in store.

Have a wonderful Labor Day weekend!