hello and welcome back to the note well
after a relatively calm week by recent
standards we can at least I think say
one thing which is that the market is
now thoroughly prepared for a rate rise
from the Fed next month and its attitude
in turn means that it becomes that much
easier for the feds to go through with
raising rates as it plainly wants to do
what we're looking at here is the yield
on the two year Treasury bonds obviously
two-year yields extremely closely linked
to the near-term future for interest
rates and you can see that it's hit a
new five-year high today plainly people
are prepared for an interest rate rise
very soon in a way that they haven't
been throughout the great long era of QE
that has followed the crisis now if you
take a look at other markets the US
stock market is hovering very close to
it ties the S&P is back in positive
territory for the year if you take a
look at foreign exchange of emerging
markets a critical reason why the fed
stayed its hand earlier this year that
those are at least stable and above
their lows from earlier this year there
doesn't seem to be any great weight
pushing from in the market to thwart the
the Fed from raising rates as it wants
to do now that's positive because there
are other reasons for great concern
about the US stock market it is very
narrow if we take a look at this next
chart which compares the russell top 50
index that's the index of the 50 biggest
companies in the US by market cap
compared to the russell 2000 index of
smaller companies you can see that
during most of the big rally following
the crisis smaller companies
emphatically outperform that's what you
would expect that is firmly in reverse
now the mega caps are outperforming that
is generally a sign either that a bull
market is coming to an end or indeed
that the bear market is effectively
alway already underway the advance is
very narrow at this point it's limited
to a few very big companies indeed all
of the advanced in the SP for this year
can be accounted for simply by amazon
and the alphabet stocks that underpin
google
just take away amazon and google and the
rest of the SP is utterly flat for the
year so as we enter a week when
Americans will be giving thanks I think
the bottom lines are that we can be
thankful that that we do appear at last
ready to bring an end to the era of
lower rates but we also need to be a
little fearful that the stock market to
be is ready to roll over into a bear
market