Good Morning Traders, I hope everyone is enjoying their weekend and preparing for the week ahead.
This past week, I failed to make the move completely and instead opted to stay within the old confines rather than fully moving out on my own. At this point, it is more than being lazy. There is something within me preventing me from making the full move, besides the long drive. I think part of it is lugging the rest of my stuff, and the other part is knowing that I live far enough from my immediate family that they seem unwilling to make the trip.
To date, only my mother has made the trip to see me and spend time at my new place. The rest of my family has not, which is disappointing. There are moments when I ask myself why I am still living in my old room. With that said, I plan to make the full move within the next two weeks.
Max is doing the best he can at sixteen. With the larger issues mostly in the background, he is moving around a lot better. This has provided some relief and allowed me to regain some of my mental capacity. I am truly thankful that Max has stayed around longer and that my prayers were answered. Max has truly given me a lesson in resilience.
The woman whom I cared deeply about still has not returned. Whether it is foolish hope, pride, or simply not knowing, it has weighed on me. I have no shame in admitting that. While this has weighed me down, it has not stopped my momentum, and I continue to move forward. Having anchors in life, especially goals, can help you weather a storm when the road forward is uncertain.
Work has also calmed down, allowing me more time to focus on trading, although I am working more. Upgrading to premium ChatGPT has helped tremendously. I have been able to create private sites to learn about bond trading, sector mixes, and how to bring the information together before making a decision. I have also scheduled tasks that make it much easier to review economic reports and markets.
By reading every day, performing mock drills, and answering questions at the end of each review, the information is sticking. I am spending more time on trading and returning to market reviews naturally after stepping away due to life. My insights will continue to improve as I work to return to my previous standard.
Markets finished the week mixed in the midst of higher yields. The Nasdaq closed higher, while the S&P finished slightly lower and the Dow and small caps lost more ground. Technology continued to provide support, but that strength did not carry through the entire market.
Treasury yields moved into a bear flattener as the front end rose more than the longer maturities. The Fed increased rates by twenty-five basis points, bringing the target range to 3.75%–4.00%. The effective federal funds rate, SOFR, and interest paid on reserves also moved higher as the increase took effect. The Fed moved its overnight rate structure higher, and funding rates largely followed.
Those moves did not, by themselves, signal a liquidity problem. The larger concern was the market continuing to price in more tightening. The two-year reflected that pressure, while the ten-year finished near 5%. Borrowing costs remain elevated, and the policy path is becoming more difficult for the market to work around.
The more important move occurred beneath the ten-year yield around the Fed decision, as real yields rose while breakevens declined. My read is that the market showed more confidence in the Fed containing inflation over time, even as the real cost of money increased. That still creates pressure for companies whose expected earnings sit further into the future.
However, technology held up. Optimism surrounding AI continued to support parts of the market, while credit spreads remained relatively tight. Investment-grade spreads narrowed slightly, and high-yield spreads widened modestly. Corporate credit was not showing widespread concern, although higher Treasury yields still make financing more expensive.
The economic reports were mixed, but retail sales showed that consumers were still spending. Sales rebounded by 1.2%, with strength in online shopping, restaurants, electronics, and vehicles. Spending extended beyond everyday necessities, and the increase remained strong after excluding autos and gasoline. Higher prices account for part of the money being spent, but the rebound was broader than an increase in fuel costs.
Production was less encouraging. Industrial output was flat, with stronger utility output offsetting a decline in manufacturing. Durable consumer goods weakened, while overall consumer-goods production edged higher. Business equipment also pulled back during the month, although it remained stronger than a year earlier. Business investment continues to provide support, but production is uneven.
Manufacturing growth slowed in New York as new orders barely increased and shipments declined. Input prices continued to rise more broadly than selling prices, leaving companies exposed to pressure on their margins. However, employment and hours worked increased, and businesses remained optimistic about the months ahead.
Philly fared better, with stronger orders and shipments, although its pace of expansion also slowed. Most companies maintained their employment levels, but hiring still exceeded layoffs among the firms reporting changes. Both surveys showed rising input and selling prices. Companies are passing along some of their higher costs, even as they continue dealing with pressure from suppliers.
Housing remained under pressure. Total housing starts declined, although single-family starts rebounded. Permits fell in both the overall report and the single-family category, showing less willingness to commit to future construction. One stronger month for single-family starts does not resolve the affordability problem.
The NAHB report reflected that caution. Builder confidence declined, sales expectations weakened, and buyer traffic remained low. More builders cut prices or offered incentives to bring buyers into the market. The pressure is being felt on both sides, as buyers struggle with monthly payments and builders give up part of their margins to complete a sale.
Abroad, the Euro Area continued to face pressure from energy. Headline inflation increased from the previous month, even though the final reading was slightly lower than the initial estimate. Services and core inflation eased, showing that the acceleration was not occurring evenly across the economy. The concern is that higher energy costs continue to weigh on consumers and businesses while making it harder for underlying inflation to settle.
Japan also announced a twenty-five-basis-point increase, taking its policy rate to 1.25%. The Bank of Japan continued to point toward further increases as economic conditions allow. Consumer spending remained resilient as employment and income improved, while AI-related demand supported exports and business investment.
Subsidies have helped reduce the burden of higher energy prices, but import costs and wage increases are already being passed into consumer prices. Japan is dealing with stronger domestic income alongside pressure from abroad. I will continue watching the yen, because a stronger currency and changes in Japanese investment flows could affect markets beyond Japan.
China continued to show a divide between technology production and domestic demand. High-tech manufacturing grew strongly, while retail spending barely increased. Fixed-asset investment declined, and property investment remained especially weak. Production in newer industries is providing support, but it has not been enough to bring about a broad recovery in consumer demand.
This leaves an uneven global picture. Technology investment remains a source of strength, while housing, household spending, and energy costs are creating different pressures across countries. For SPY, strength in AI-related demand can continue supporting some of the largest companies even while other parts of the economy struggle.
Next week brings durable-goods orders and new-home sales. I will be watching whether business investment remains steady and whether incentives are helping builders turn interest into purchases. The Iran conflict also remains important, as higher energy and transportation costs can continue working through business expenses and consumer prices.
Some pass-through is already occurring. The question now is how much more businesses can pass along before demand weakens. Consumers are still spending, but that does not mean they can absorb higher costs indefinitely.
I continue to favor SPY remaining within a range as the market balances technology strength against higher yields and inflation pressure. A move higher would carry more weight with broader participation and some relief in real yields and energy prices. A break lower, accompanied by widening credit spreads and another increase in yields, would give me a reason to change that view.
For now, I want to see how price responds before committing to a short-dated options trade. I am returning to trading with a better understanding of how the pieces fit together, and the next step is applying that understanding with patience.