When US rates broke higher the global stock market ex-US equity broke down and formed a new 12-month low. The equity sell-off came a day after the 10-year note yield traded to 3.25 percent, trading to its highest levels since 2011. This market upset was triggered by comments from Federal Reserve Chairman Jerome Powell who, more than a week before, suggested that the US was a “long way” away from getting rates to neutral – sending a clear message that the rate hike trajectory was aggressive and that we could expect more hikes to come at a decent pace. Markets, in a delayed reaction, started to panic.
While speaking on CNBC Mr Gundlach said that the global market taking out a low and putting in a new low, that something is happening. “I do not think the US can hold in there,” according to Mr Gundlach. It seems to some market participants that the US equity market is in for a period of volatility and some shocking moves in the future.
We at Classiarius feel that next two weeks, until November 1, markets could trade lower on higher volume and that the next moves lower will provide strong buying opportunities. We tend to think that the S&P 500, Nasdaq and the Dow could trade lower, from the highs three weeks ago, by 15 to 17 percent.
There will likely be new lows tested in China, Germany and other key markets.