The yield on the 10-year Treasury bonds hit a seven-month high in Friday's session as the stock market fell, led by the ‘magnificent seven' stocks. Is this a warning from the bond vigilantes and will the “Santa Rally” take a pause? Here's what analysts are saying.
What Happened: The 10-year Treasury yield hit 4.631% during Friday's session, which was its highest level since May 30, 2024. However, it is currently yielding 4.6% on Monday.
Talking about the spiking yields, Ed Yardeni, the president at Yardeni Research said, "Bond Vigilantes are sending a loud warning message. They aren’t convinced Donald Trump, the new sheriff coming to town, will maintain fiscal law and order any better than the old sheriff. They are also losing their confidence in Jerome Powell, the deputy in charge of monetary law and order."
As the “Magnificent 7” stock led the market lower on Friday, Louis Navellier of Navellier & Associate, in his note said, "The Santa Claus rally is in serious doubt now. It certainly appears to be a bit of profit-taking."
"The bond vigilantes have been pushing the narrative that the Trump tariffs are going to be inflationary, but the reality is that a strong U.S. dollar causes the prices of commodities and imported goods to decline."
Yardeni, mentioned in his note that a pullback in the markets may have already started.
"We still think that the 10-year yield should trade around 4.50% plus/minus 25bps in 2025. But we can’t rule out a move back up to last year’s high of 5.00% early next year. That’s another reason why we expect a stock market pullback/correction that might have started already. The S&P 500 peaked at a record 6090.27 on Dec. 6.”
See Also: Chamath Palihapitiya Says S&P 500 Index ETFs Need To Be ‘Fixed’ Or They Will End In ‘Disaster’
Why It Matters: Ryan Detrick, the chief market strategist at Carson Research, highlighted that no other seven-day period except the last seven days of the year is more likely to be higher. This period of “Santa Rally” has given positive returns at least 78.4% of the time.
Incoming Treasury Security Scott Bessent will manage the Treasury auctions better than the current Treasury Secretary Janet Yellen, said Navellier.
"In the meantime, I suspect that the bond vigilantes are annoying President-elect Trump, so it will be up to incoming Treasury Security Scott Bessent to help push Treasury yields lower."
Reinstalling confidence among investors Navellier further added that Friday's selloff should not be worrisome and the ‘B team' of traders was getting rid of their inventory before the weekend.
"Investors shouldn’t worry about the sell-off – it’s just what we call inventory cleaning. But there is a sell-off today, and if you did want to buy, it's not a bad time to nibble. Normally, we rally going into New Year’s, and we normally rally in the new year. So, if we don’t, it means we have to wait until the A team comes back, which will of course be after the New Year’s holiday," he added.
Despite a Friday market decline, 2024 is poised to be a highly successful year for the stock market. The S&P 500 is projected to mirror last year’s impressive 24% surge, leading to a cumulative two-year gain of 55%, the most robust since 1999. Furthermore, U.S. stocks are significantly outperforming global markets, exhibiting the largest lead since 1997, fueled by the continued strength of the U.S. economy.
Here's a snapshot of the market performance for Friday and the year.
| Index/ETF | Friday | YTD |
| S&P 500 Index | -1.11% | 25.89% |
| SPDR S&P 500 ETF Trust SPY | -1.05% | 25.89% |
| Nasdaq 100 | -1.36% | 29.79% |
| Invesco QQQ Trust ETF QQQ | -1.34% | 29.78% |
| Dow Jones | -0.77% | 13.99% |
| SPDR Dow Jones Industrial Average ETF Trust DIA | -0.74% | 14.03% |
| Rusell 2000 | -1.56% | 11.52% |
| iShares Russell 2000 ETF IWM | -1.46% | 11.46% |
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