SIACharts Logo

Commentary >

 iShares 20+ Year Treasury Bond ETF (TLT) & iShares US Home Construction ETF (ITB)

Equity markets have continued to churn sideways this week with rally and selloff attempts quickly being reversed the following day. Similarly, a seven-trading day rally in WTI Crude Oil ran out of steam and was followed by a correction of two days and counting.

US treasury yields continued to climb toward 4.35%, close to their October 2022 peak as investors anticipated a “hawkish hold” decision from the Fed which essentially came to fruition. The US central bank held the Fed Funds rate at 5.50% yesterday. FOMC members maintained their forecast calling for one more rate hike this year, likely in November to continue an every-other-meeting pace. For 2024 Fed members were less dovish, forecasting 0.5% of rate cuts compared with their June forecast of 1.0% in rate cuts for 2024, meaning keeping rates higher for longer. FOMC members raised their GDP forecasts for 2023 and 2024 and left their inflation forecasts essentially unchanged.

One word to describe trading action across most sectors this month has been “congestion”. A look across sector ETF charts suggests that outside of Energy, there have been no significant breakouts, and outside of construction or alternative energy related groups, there have been few significant breakdowns either. The majority of groups find themselves sitting near the middle of trading ranges currently.

This indecisiveness can also been seen at the Country level where the split between gains and losses among the Country ETFs we follow has been about 50-50, with Japan plus resource producing countries near the top of the list, and China plus Germany among the notables near the bottom of the list.

Today’s Bank of England meeting was the last major central bank decision for September. The end of the month and quarter are fast approaching. Tomorrow is Quadruple Witching Day and also brings Flash PMI reports on economies around the world. Next week’s economic calendar is dominated by US housing news.

It’s a light week for earnings news headlined by Costco on Tuesday and Nike on Thursday. Confession Season has already started with the profit warnings from airlines earlier this month, so investors may start to watch for preannouncements from other sectors to see if the impact of rising interest rates or rising energy costs is relatively contained or having a wider impact.

In this edition of Equity Leaders Weekly, we look at what impact expectations of “higher for longer” interest rates have had on bonds and on the homebuilding sector.

iShares 20+ Year Treasury Bond ETF (TLT) 

Keep up to date on the latest financial market news.

Receive a daily newsletter with stock highlights, ETF rankings, weekly market focus and others.