“While that may be appropriate in the big picture, markets are always concerned about the speed of the movement and not the overall level. The fact that stocks did not shy away from these moves indicated complacency,” Krinsky said. “Whether this is the start of the pre-election jitters or not, we continue to see downside risk for equities in general in the coming weeks, with a return of the SPX to the 5,500-5,650 zone looking quite likely is.”

The price of options that protect against a prolonged slump in U.S. Treasuries has risen to the highest level this year amid concerns that losses could widen.

Meanwhile, swap prices reflect less than 100% certainty that the central bank will cut rates at each of its two remaining policy meetings this year. The bond market is also lowering expectations about the extent of Fed rate cuts in the coming year.

“The price of options to hedge against losses on government bonds is soaring,” says Andrew Brenner of NatAlliance Securities. “In the US it is about the elections and possible victory. That’s what’s being built into the fee structure, giving the vigilantes the green light. It will turn around, but it may take a high employment rate or a surprise election.”

“We would caution investors not to read too much into the recent rise in bond yields,” said Tiffany Wilding of Pacific Investment Management Co. “Over the last six major Fed rate-cutting cycles, the change in 10-year Treasury yields each month after the first cuts has not provided a consistent signal about the size of further cuts or whether the U.S. economy is entering a recession.”

In fact, yields rose more often than not in the month after the first cut, she noted.

“Stock market performance in the first month after the Fed began cutting spending has been a similarly poor predictor of future economic performance (and market returns),” Wilding said. “More often than not, stocks tend to rise in the month after a cycle of cuts begins, despite widening gaps as time goes by.”

Looking at the same very different cycles of 1995 and 2007, stock returns (based on the rate-sensitive Russell 2000 of small caps) in the month after the first rate cut were positive in both cycles (4.6% and 6.9% respectively). . Wilding said. However, stock market performance fell 4.4% in the year after the 2007 cut, while it rose 21% in the year after the 1995 adjustment.

“Even with the recent rise in 10-year Treasury yields, we remain bullish on US large caps,” said Nicholas Colas of DataTrek Research. “History suggests that we should reject the idea that interest rates will explode due to deficit concerns, at least in the short term. Instead, we see higher rates as a sign that economic growth remains robust and that corporate profit growth should continue in the coming quarters.”

“All else being equal, the more rate cuts are eliminated for next year, the less of an outlier it becomes for the market to achieve 15% earnings growth,” said Strategas’ Ryan Grabinski. “However, additional rate cuts do not change the challenges S&P faces in achieving that growth rate.”

Revenue growth continues to show signs of slowing, and if analysts were to suggest that rate cuts would lower interest costs, that argument would start to disappear, Grabinski said.

“It seems increasingly difficult to achieve a profit margin of almost 14%,” he added. “The question is when something gives.”

According to Jose Torres of Interactive Brokers, the stock market is extremely vulnerable given the headwinds looming.

“Earnings expectations for next year are positive, which increases the importance of forward guidance rather than past performance,” he said. “Considering that valuations are around 22 times next year’s earnings, any disappointment in the operating profit outlook could have a significant impact on stock market performance.”

Business highlights:

• Boeing Co. will likely continue to burn cash next year as it grapples with the challenges of ramping up production again after a lengthy labor strike and regulatory oversight of its factory processes.

• AT&T Inc. gained more mobile subscribers in the third quarter than analysts expected, continuing its winning streak from the previous period.

• Hilton Worldwide Holdings Inc. lowered its profit outlook as the addition of new hotels to the global system failed to offset slower travel demand.

• Coca Cola Co. fell as investors weigh how long the soft drink supplier could raise prices without customers buying more of its drinks.

• Spirit Airlines Inc. is in discussions with Frontier Group Holdings Inc. about a bankruptcy filing to enable a takeover by the rival discount carrier, according to people with knowledge of the matter.

• The Capital One Financial Corp. proposed $35 billion acquisition of Discover Financial Services is under investigation by New York Attorney General Letitia James, who said the deal would have “significant impacts” on consumers in the state.

• Deutsche Bank AG said it will have to set aside more money than expected to reduce debt. It was the second time this year that it had to adjust its expectations.

• Kering SA warned that annual profits will fall to the lowest level since 2016 as a slump in Chinese demand for luxury goods hampers a turnaround of the French fashion group’s biggest label, Gucci.

Main events this week:

• US new home sales, unemployment benefits claims, S&P Global Manufacturing and Services PMI, Thursday

• UPS, Barclays earnings, Thursday

• Beth Hammack of the Fed speaks Thursday

• U.S. Durable Goods, University of Michigan Consumer Confidence, Friday

Some of the major moves in the markets:

Stocks

• The S&P 500 was down 0.9% as of 4 p.m. New York time

• The Nasdaq 100 fell 1.6%

• The Dow Jones Industrial Average fell 1%

• The MSCI World Index fell 0.9%

• Bloomberg Magnificent 7 Total Return Index fell 2.1%

• The Russell 2000 index fell 0.8%

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%

• The euro fell 0.1% to $1.0786

• The British pound fell 0.4% to $1.2933

• The Japanese yen fell 1% to 152.58 per dollar

Cryptocurrencies

• Bitcoin fell 1.6% to $66,416.63

• Ether fell 4.7% to $2,509.01

Bonds

• The yield on ten-year government bonds rose by three basis points to 4.23%

• The German ten-year yield fell by one basis point to 2.30%

• The British ten-year yield rose by three basis points to 4.20%

Raw materials

• West Texas Intermediate crude fell 1.1% to $70.98 a barrel

• Spot gold fell 1.2% to $2,716.54 an ounce

This story was produced with the help of Bloomberg Automation.

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