Yesterday morning I mused about the “Trump Trade” running out of gas. Yesterday afternoon, it did…at least for a day. Small caps, Tesla Inc. (TSLA) shares, and even Bitcoin all rolled over – in part because Treasury yields surged again. So far today, we’re getting a bit of a breather with equities, gold, Treasuries, and the dollar stabilizing.
My take? The incoming administration is risking an “own goal” here. In soccer terms, that’s when you score on yourself rather than the other team doing it. In policy terms, it’s when you don’t at least throw the bond market a bone.
10-Year Treasury Note Yield (YTD Chart)
The longer Trump or his surrogates don’t put out messaging to the markets that they’ll be at least somewhat rational and restrained when it comes to blowing out the budget deficit and boosting government debt, the more the bond market is going to push back. And when that push gets strong enough, and rates rise far enough and fast enough, it hurts stocks – like yesterday. The yield on the 10-year jumped to 4.45% Tuesday, roughly the highest level since early July.
Meanwhile, this morning’s Consumer Price Index (CPI) figures were right in line with forecasts. The headline CPI rose 0.2% in October, while the core CPI that excludes food and energy gained 0.3%, just as economists expected. The Federal Reserve will continue to keep a close eye on the data between now and Dec. 18, when its next meeting concludes. Rate futures markets were recently pricing in about a 59% chance the Fed cuts rates another 25 basis points at that gathering.
It looks like Spirit Airlines Inc. (SAVE) may be on its last legs here, at least in its current form. The airline may soon file for Chapter 11 bankruptcy, sending its shares plunging another 71% in the early going. It remains to be seen whether the company will ultimately emerge from bankruptcy in another form. Its fate was sealed after merger negotiations with both JetBlue Airways Corp. (JBLU) and Frontier Group Holdings Inc. (ULCC) fell apart.
