It was only 3 weeks ago, July 16.  In that day’s post [see: On the Brink] we noted that the equity meltup was at risk from the bond market.

A rather worrisome development in the bond market is threatening equities’ meltup. We’ve discussed this many, many times in the past. A breakdown in the 2s10s leads to corrections, while a breakout leads to crashes.

It’s always a bit unnerving to publicly utter the “c” word in the midst of a market meltup. At the open that day, S&P 500 was up over 19% ytd.  In fact, it closed at an all-time high that day.

In hindsight, with SPX 10% now lower (Nikkei futures off 28%) and futures nailing our next downside target, it seems pretty obvious.Don’t look now, but the bond market is on the brink yet again – an even more important brink. And, the yen carry trade is fast unwinding.

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We’re seeing spectacular moves in the bond market this morning with the 10Y, which reached our 3.99 target yesterday, plunging as low as 3.79% and the 2s10s reaching -10 bps.

Equities are taking it on the chin, with ES nearing our next downside target.

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That was quite a bounce yesterday, especially considering that nothing new was learned from the FOMC and we still have the very real threat of a broader war in the Middle East which threatens the entire lower inflation/rate cut narrative.

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While the FOMC is not expected to rock the market’s boat today, a spectacular 11% rise in NVDA and another wrinkle in the Middle East conflict are certain to induce volatility.

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Futures are moderately higher after rising as much as 35 points overnight.

Wednesday’s FOMC rate decision will dominate the financial news this week.

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PCE came in as expected, 0.1% MoM for headline and 0.2% for core. Personal income and spending, however, showed a slowdown. Income was 0.2% versus 0.4% expected and prior, and personal spending was 0.3% versus 0.4% expected and prior.

The mixed picture took a little steam off the futures, which had been up as much as 50 points overnight. Still, ES managed to hold important support as we approach the open.

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It was a horrid day for the market, but a very good day for chartists.

We got a taste yesterday of the power of our yield curve model, with SPX dropping by the largest percentage since October 2022 to nail our next downside target.

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As we’ve discussed every day for the past week, the 2s10s is sounding an alarm that should have equities very concerned.

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