From the Trading Desk at Stipelis:
The Macro View – Global Market Moves Across Asset Classes
Markets Tell Two Stories
The most important market developments are often found where asset classes disagree.
When stocks, bonds, commodities, currencies, and credit markets all move in the same direction, the message is usually straightforward. Today’s environment is different. Several major markets continue to offer competing signals, creating a more nuanced picture of the economic landscape.
The dominant message remains one of economic resilience. However, inflation pressures and growing caution within credit markets suggest the story is not as simple as looking at stock prices alone.
Let’s begin with equities.
The major U.S. stock indexes continue to produce solid gains. The Nasdaq 100 is up 15.64% year to date. The Russell 2000 has gained 11.99%, while the S&P 500 advanced 11.93%. The Dow Jones Industrial Average remains higher by 8.72%.
Tuesday’s trading session reinforced that trend. The Nasdaq 100 futures contract gained 1.09%, the Russell 2000 rose 0.80%, and the S&P 500 added 0.54%.
Broad participation remains one of the most constructive features of the market. Strength is not confined to a handful of large companies. Small-cap stocks continue to participate, suggesting investors remain willing to assume risk across a wide range of sectors.
Volatility measures support that interpretation.
The VIX closed at 17.58 after falling 4.40% during the latest session. The VVIX also declined significantly. Lower volatility readings generally indicate reduced demand for downside protection and a relatively calm investment environment.
Credit markets, however, deserve closer attention.
For much of the year, both corporate and high-yield spreads remained compressed, reflecting confidence in economic conditions and credit quality. That has begun to change.
The ICE BofA U.S. Corporate Index Option-Adjusted Spread has widened from approximately 0.73 during late spring and early summer to roughly 0.86 in early October.
Meanwhile, the ICE BofA U.S. High Yield Option-Adjusted Spread has widened from approximately 2.60 in late August to 3.38 by October 26.
Neither level currently suggests meaningful financial distress.
However, trends often matter more than absolute levels.
The widening of both investment-grade and high-yield spreads suggests credit investors have become more selective. Importantly, the increase has been more pronounced in lower-quality debt than in higher-quality corporate bonds.
This creates an important divergence.
Stock investors continue to show optimism, while credit investors appear incrementally more cautious than they were only a few months ago.
The bond market tells another important part of the story.
Under the Stipelis intermarket framework, Treasury markets often deserve special attention because they frequently react to changing economic conditions before stocks.
Treasury prices remain weak on a year-to-date basis.
The Treasury Bond contract remains down 7.00%. The Ten-Year Note is lower by 5.63%. The Five-Year Note has declined 4.46%, while the Two-Year Note is down 2.26%.
These declines reflect a broad rise in interest rates throughout the year.
Current Treasury yields illustrate that trend.
The one-month Treasury yield stands at 4.11%, while the six-month yield is 4.35%. The One-Year yield sits at 4.47%.
Moving further out the curve, the Two-Year yield is 4.68%, the Five-Year yield is 4.84%, the Seven-Year yield is 4.91%, and the Ten-Year Treasury yield stands at 5.00%.
The long end of the curve remains elevated, with the Twenty-Year Treasury yield at 5.35% and the Thirty-Year Treasury yield at 5.31%.
The shape of the curve remains important.
Rather than reflecting recessionary conditions, the curve retains a generally upward slope. The spread between the Two-Year and Ten-Year Treasury yields remains positive at approximately 0.32 percentage points.
A positively sloped yield curve is generally associated with expectations for ongoing economic activity rather than severe contraction.
The yield curve has also steepened modestly in recent sessions.
Viewed alongside elevated longer-term yields, the message points toward an economy that continues to expand while inflation remains part of the conversation.
That message becomes even clearer when we turn to commodities.
According to the Stipelis intermarket framework, commodities typically move opposite the dollar and opposite bond prices. Rising commodity prices often align with rising interest rates and falling bond prices.
Energy markets continue to confirm that relationship.
Crude oil remains up 77.22% year to date. RBOB gasoline is higher by 82.64%, while heating oil has gained an extraordinary 123.20%.
These remain some of the strongest annual gains anywhere in the market.
Tuesday’s decline in crude oil does little to alter the broader picture. The larger trend continues to point toward persistent strength across major energy markets.
Such gains are difficult to ignore because energy prices influence transportation, manufacturing, agriculture, and consumer costs throughout the economy.
The U.S. Dollar adds another layer to the analysis.
The Dollar Index remains higher by 3.83% year to date and strengthened again during Tuesday’s session.
Traditionally, a stronger dollar creates headwinds for commodities. Yet energy markets continue to perform exceptionally well despite the firm dollar.
That divergence suggests the forces supporting energy demand and pricing have outweighed the normal restraining influence of a stronger currency.
Precious metals tell a different story.
Gold rose during Tuesday’s session but remains down 8.07% for the year. Silver remains lower by more than 23%.
As a result, inflation pressures do not appear broad-based across all commodities. Instead, they remain concentrated within specific areas, particularly energy.
Looking across all asset classes, the dominant theme becomes clearer.
Stocks remain strong.
Volatility remains controlled.
The yield curve remains positive.
Credit spreads remain relatively low by historical standards.
At the same time, bond prices remain weak, energy prices remain elevated, and credit investors have become increasingly selective.
The market is not delivering a classic recession signal.
Nor is it delivering a broad disinflation signal.
Instead, the evidence points toward a late-cycle expansion characterized by ongoing economic activity and persistent inflation pressures.
A useful metaphor may be a ship sailing through relatively calm water while distant storm clouds remain visible on the horizon. Conditions today appear manageable, but several indicators suggest investors are paying closer attention to risks than they were during the summer.
The most revealing aspect of today’s market may be the divergence between stocks and credit. Equity investors continue to focus on economic strength, while fixed-income markets are becoming incrementally more cautious.
Neither market can be ignored.
Together, they provide a more complete picture than one can provide alone.
As always, the objective is not to predict tomorrow’s headlines. The objective is to observe what markets are communicating today and understand how those messages fit together across asset classes.
Stephen Coleman – Head Market Strategist