Wednesday's Market Minute: Bonds & Bitcoin Hint At Rally's Limits

There are two things I'm watching for signs of limitations to the stock market rally: bonds and bitcoin. Treasuries are flashing signs of volatility the past month, and bitcoin's sluggishness compared to stocks calls into question the narrative of a pivot by the Federal Reserve.

With Fed minutes today, bonds take center stage. The big summer rally in bonds that's been the foundation for equity market strength looks like it ended when August began, with the 10-year yield making a U-turn back higher since this month began, up from below 2.6% to almost 2.9% this morning.

Yields are still below their 2022 high, which may limit the damage bonds can do to stocks at this moment, but we can't forget that rising yields are the main culprit for equity market volatility the past year. Based on a few trading sessions the past week in which stocks stalled out amid bond sell-offs, there is some reason to believe that rising yields could cause a headache for stock bulls if they rise quick enough, even from depressed levels.

What's most interesting is that Treasury sell-offs this month coincided with cool inflation data, and on days in which economic reports are disappointing, bonds aren't catching much of a bid. Despite an abysmal Empire Fed manufacturing report and some weak housing data to kick off this week, yields are still higher. All of this suggests that whatever shift in inflation or Fed policy bonds had been pricing in from June and July is over. If yields spike on Fed minutes today, it'll probably mean that whatever Peak Inflation narrative bulls were riding is running out of steam.

Also – don't sleep on bitcoin's utility as a risk-on/off signal. If the Fed were truly pivoting, bitcoin would likely be roaring back. Either the jig is finally up there, or bitcoin's sluggishness is in line with the message from bonds: central banks around the world will continue to squeeze economies.

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