Larry’s Note: The game is rigged against you. The biggest firms see your trades before you place them. They’re faster than you. They skim a little off the top, millions of times a day. And the best opportunities remain locked behind closed doors.
Recently, I started trading in a market where none of that is true. I’ve come to call it “the last unrigged market in America.”
Tonight, I’ll reveal what it is… and how you can use this market to pull regular gains in the double and triple digits. In my four-decade career, I’ve rarely been this excited about an opportunity.
We’ll kick off at 8 p.m. ET, so you have just a few more hours to click here to automatically add your name to the guest list. Better still, for those who attend, I’ll send a free trade after the event when the right setup develops. So please tune in to make sure you aren’t left behind…
On the surface, markets have embraced the recent peace deal with Iran.
Stocks have rallied. The Nasdaq and S&P 500 are back within a whisker of all-time highs. Oil prices have pulled back sharply, leading investors to believe that one of the major contributors to inflation has peaked.
In one sense, it’s the exact type of reaction you should expect. Lower energy prices should reduce inflation pressures across the economy. And that in turn should ease pressure on the Federal Reserve around interest rates, which should help the stock market.
However, there’s one problem with this unfolding narrative.
Despite the optimism around the peace deal, the bond market remains skeptical. And when stocks and bonds disagree, there will be plenty of bumps ahead…
Despite the rebound in stocks, U.S. 10-year Treasury yields have been hovering around 4.45% since the Iran deal was announced. That’s not far below their 4.69% war-time high.
That raises an important question: If the major inflation threat is gone, why aren’t investors piling back into bonds? After all, bonds increase in value when yields fall.
Stock investors are factoring in that the worst of inflation is behind us. But this tells me that the bond market is less convinced.
Despite calls from President Trump to “let the oil flow,” analysts predict it could take weeks or even months to clear the Strait of Hormuz. And in the end, will Iran stick to its side of the deal? There’s still a lot of debate about what the deal entails.
Until Brent and WTI crude oil return to their pre-war levels, inflation is going to remain under pressure. Add in a robust economy, and it’s unlikely that we’re going to see a meaningful decline in inflation anytime soon.
Recall that last week’s Consumer Price Index (CPI) pointed to inflation running at 4.2% year-over-year.
That’s why the bond market is sending a very different message to stocks…
Treasury yields haven’t fallen significantly despite the easing in geopolitical events in the Middle East.
The bond market is pricing in an economy that’s still growing and an inflation problem that could take much longer than expected to solve. Rather than pricing in a rapid return to lower inflation and interest rates, bond investors have a far more sober take.
They’re preparing for a scenario where inflation remains stubbornly high, and the Federal Reserve is forced to keep rates higher for longer.
All this comes as the market prepares for the first press conference with Kevin Warsh as Federal Reserve chair – and markets are watching closely for his signal on rates. Despite pressure on the Fed to lower rates, the CME FedWatch tool is still factoring in a 42.3% chance that rates will be 0.25% higher by December.
If both inflation and rates remain elevated, that has major implications for stocks.
Higher interest rates reduce the value of future earnings. That becomes particularly important when investors are paying huge premiums for anticipated growth – like they are for AI stocks and hyped names like SpaceX.
That’s why I’m paying extra close attention to the bond market right now. While stocks are celebrating the peace deal, bonds are warning us that the battle hasn’t finished.
Those chasing the stock market hype could find themselves badly exposed if the bond market proves right.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
Reading Trading With Larry Benedict will allow you to take a look into the mind of one of the market’s greatest traders. You’ll be able to recognize and take advantage of trends in the market in no time.
