Prices stabilized following huge losses over the last two days: the DJIA and the S&P500 each add a quarter of one percent while the NASDAQ, down for the third straight session, gave up .22 percent, a trifling amount. This snapback is the typical market reaction –smallish upticks- that follows losses deeper than two percent on the preceding day. days a more than two percent loss the day before. The S&P500 median change, for example, is .38 percent after such significant reversals.
Concern over the level of interest rates continues to hang over the market – and justly so, with the focus on ‘how high will the Fed let interest rise.’ Our diagram reveals the close relationship between interest rates and capital values. It updates our post of June 12 that showed the close correlation between the S&P500 and the value of the Ten Year Treasury obligation.
(The interest rate on bonds is the inverse of its capital value; when interest rates rise, the value, or price, of the bond declines. Since stocks are a form of capital value, their price follows the same reverse relationship.)
The diagram shows just how narrowly the S&P500 tracks the Ten Year Treasury value of ten days earlier. Given this lag and the fact of rising interest rates over the last ten days, expectations of further market declines seem reasonable.
DJIA .28 percent
NASDAQ -.22 percent
S&P500 .27 percent
