S&P 500: Quiet Rage-Bound Price Action Masks Critical Yield Curve Developments

Published 07/08/2025, 05:24
Updated 07/08/2025, 07:42

The S&P 500 closed higher, propelled mainly by Apple (NASDAQ:AAPL), while the equal-weight index ended the day essentially unchanged, highlighting the lone standout in an otherwise uneventful session.

Despite the upward move, the S&P 500 spent the afternoon stalled at the 61.8% retracement level, effectively revisiting Tuesday’s highs.S&P 500-Chart

There were 121 more decliners on the NYSE yesterday than advancers.NYAD Index Chart

The 10-year minus 2-year spread is once again setting up for a potential upside breakout, opening the door for yield curve steepening. While the exact timing remains uncertain, the opportunity is clearly there if the breakout finally occurs.US10Y-US02Y-Daily Chart

I’ve generally maintained the view that the yield curve would steepen via a bear steepener. Considering rising inflation expectations and the recent uptick in the ISM Services Prices Paid index, a bear steepening remains my base case.

However, that doesn’t rule out the possibility of a scenario where the steepening arises from a combination of the 2-year yield declining and the 10-year yield rising, particularly if stagflation concerns begin to surface.

The 30-year minus 3-month spread is in a similar situation, consolidating around 60 bps and positioning itself for a potential breakout.US30Y-US03MY-Daily Chart

The spread between the US 5-year and 5-year JGB contracted yesterday and is nearing a breakdown below its August 1 low. The tighter this spread becomes, the more likely it is that USD/JPY will continue strengthening against the US dollar.US05Y-JP05Y-Daily Chart

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