After three weeks of the S&P 500 cruising higher on a cooling economy and a more dovish Federal Reserve, yields hit multi-decade highs and ended the streak.
The move had been building since early July as structural concerns such as the deficit rising, inflation staying above 3%, and a wave of AI-related corporate issuance competing for the same duration buyers compounded. The pain point was hit, and Bessent showed his hand, which we’ll speak more on later.
Across equity sectors, traditional defensive areas like healthcare and materials benefited, while energy continued to get support from elevated oil prices. Healthcare was especially lifted after Moderna’s extraordinary rally following positive melanoma vaccine data.
Tech stocks bore the brunt of the weakness on the sector breakdown. Walmart delivered its slowest US comparable-sales growth in more than six years and guided below expectations, sending the stock down more than 9%. That view is largely comparable with the macro data, as households increasingly make trade-offs. Target had a better quarter and raised its outlook, but the broader picture remains one of uneven consumer spending.
The dollar was used as Bessent’s sacrifice, with the dollar index (DXY) falling about 1%. Bitcoin had an unlikely winning week, benefitting from the buyback announcement, lower yields, renewed liquidity expectations, and optimism following Trump’s meeting with crypto industry leaders. Gold also continued higher, with the “debasement” thesis getting a fresh tailwind.
Instead of doing several short memos on different assets, as is our usual style on a Monday, we’re combining all our thoughts into one continuous analysis this week, all focused on the knock-on effects of Bessent’s buybacks. Yields, dollar, gold.
Let’s get into the guide to trades moving markets, where things stand, and where they may be heading.
“Not QE, Not YCC”
“Summary of House Views”
Not QE, Not YCC
This title felt apt to correct any misinformation out there. This was not quantitative easing or yield curve control. The Treasury is altering the maturity and liquidity composition of the debt held by the market. More Operation Twist than QE.
Bessent’s actions in the Treasury market are likely to drive most themes in the coming days, so this week we focus on this core area while exploring knock-on effects across multiple assets. We’ll start first and foremost with Treasuries themselves.