Bond yields rising, divergence shows a slight 2020 SPX pullbackThe S&P 500 has been on a tear in 2019, rising nearly 30%, from low of the year to high it has surpassed the 30% growth mark. However, there has been a prevalent divergence between bond yields in the US and the SPX, which are correlated to move the same way. This means there could be a convergence in the near future to get back to the "regular" pattern.
Over the past few months bond yields have been climbing slightly, but year to date there has been a 23% drop in the 30 year and 31% drop in the 10 year. About the same amount as the S&P has risen. Those bond yields have risen about 15% since September while the S&P 500 has risen exponentially. This means we are expecting a pullback in the S&P 500 since the bond yields have started to do their part and slowly rise. We are not expecting a 30% gain in bond yields, not a 30% drop in the S&P 500 but a moderate move to regularity. Based on the monthly, the S&P 500 could pullback 9.5% to the 2926 level where the impulse for the move higher happened. The volume is extremely weak on all time highs which is another indicator. From there the upside potential is 3500+ based on a Fib extension.
If the S&P 500 pulls back we do expect another rise of 15+% ideally in bond yields. This can be contributed to eased tensions between China and the US and a hold on rate cuts from the US Fed.
