Ahead of President-Elect Trump taking office, U.S. treasury bill yields are rising. The 10-year treasury is 4.77%, while the 30-year closed at 4.96%. What do bond markets know that the stock market is ignoring?
The debt market is expecting December 2024’s inflation rate to either rise or stay the same. Neither outcome is good news for stock markets. It would prevent the Federal Reserve from cutting interest rates many times this year. At best, the Fed may cut rates by 25 bps twice this year. However, a negative outcome is emerging: the Fed could raise interest rates.
Bank stocks, which post quarterly results this year, are stuck in a trading range. Bank of America (BAC), Citigroup (C), and JP Morgan Chase (JPM) are trading flat. Investors should take advantage of the weak performance to accumulate bank stocks. The Republican party may ease regulations. This would more than offset the negative impact of an interest rate pause on financial institutions.
Watch TLT stock.
Passive bond investors who hold the 20+ Year treasury bond ETF (TLT) need to watch the holding carefully. At $85.43, the ETF may fall below prices not seen in 20 years. As a result of rising inflation, tariffs, trade restrictions, and strong job markets, It would strongly suggest that the Fed will need to hike interest rates later this year.
