Nov. 4:
”Bond markets reacted with notable volatility, reflecting both expectations of easing and the influence of this week’s election. Longer-term yields rose above 4.3%, signaling skepticism among bond investors. In particular, the potential of a Republican sweep in the election has pushed yields higher as markets factor in potential fiscal spending plans that could inflate the deficit. If there is a Republican sweep, I can see yields on the 10-year bond jumping 20 basis points that would offset some of the other positives for equities like lower corporate tax rates. However, a divided government could bring some relief to bond markets, as a split Congress typically constrains ambitious spending programs.
In the equity markets, tech stocks showed renewed strength, particularly driven by Amazon’s strong performance. Despite some choppiness in individual tech names, the broader rally in the Magnificent Seven suggests that investor appetite remains robust for these stocks. The bull market in stocks looks set to continue, while bonds face a rougher road. In the near term, stock markets seem poised for further gains, bolstered by resilient earnings and steady economic fundamentals, while bond markets will likely grapple with higher yields and volatility ahead. Investors should prepare for continued strength in equities, and exercise caution in the bond market as rates may rise.“
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