Market Brief – 11/30/18

Much to the market’s surprise, Treasury yields are slowly falling despite a huge supply of Treasury bonds hitting the market from the massive fiscal deficits our country is running. The average investor sees this supply and interprets it to mean interest rates must go higher. Investors should look at lending demand, or businesses and consumers who want to borrow, and see demand is falling. Interest rates are a function of supply and demand. When lending demand falls, so do interest rates.

For the past year, I’ve suggested the rise in Treasury yields is a massive topping pattern, which it is starting to appear as such. With the money supply decelerating and lending demand falling, as a result, this chart pattern further suggests we are likely to see new all-time lows in Treasury yields during the next recession. When interest rates fall, bond prices rise, which is why the “Smart Money” has been buying bonds. The profit on bonds when yields get near zero is quite large.

The stock market is putting a great deal of hope on President Trump and President Xi’s Saturday dinner meeting. The Chinese don’t negotiate over dinner but behind multiple closed-door sessions. Look for comments from both sides following the meeting and likely more on Sunday. Keep in mind, any deals struck must be approved by Congress.

Investors rushed to buy stocks ahead of the G20 meeting, but trading volumes were slightly below yesterday, indicating the “Smart Money” is still on the sidelines. The S&P 500 closed just over its 50-week moving average and just below its 200-day moving average, which sets up either a move up to 2,800 or back down to 2,600.

Ten-year Treasury yields quietly closed below 3%. I expected the short-sellers who have been bullish on yields to come out in full force, but they didn’t. While a one-day close doesn’t mean the bond market is going to rapidly move, this does indicate yields should continue to fall to 2.8% where the big battle line between the bulls and bears will be drawn. Perhaps on Monday, the short-sellers will be back, but maybe they are too exhausted to continue the fight at 3%. We’ll find out soon enough.

Physical gold fell again and remains in a 5-month consolidation pattern. The gold miners dropped below their 50-day moving average again and the silver miners are back testing their 6-month lows. Agricultural commodities were flat on the day but are staging another reversal pattern after heavy selling from earlier in the month.

There is a great deal at stake for both bulls and bears on the outcome of tomorrow’s dinner meeting between President’s Trump and Xi.