Last week’s sharp drop in yields matched the behavior we saw earlier this year in May - a head fake followed by a quick snapback. While an outright interest rate cap by the Fed appears to be off the table for now, there’s a clear preference by the central bank to keep interest rates as low as possible for an indefinite period of time.
It’s a relatively small bounce at this point, but the strong rebound in cyclical sectors last week is worth watching. A steeper yield curve certainly helps banks here and the financial sector could lead the market higher if the U.S. economy is able to execute a steady recovery.
Discretionary stocks took a pause last week and it’ll be interesting to see if they can continue their recent upward trend. The expiration of the previous unemployment benefits package and the lack of clarity around how the Trump executive orders might play out could result in consumers tightening the purse strings.