MARKET CALL: Bond Vigilantes Spooking Stock Jockeys

Last year, during August, we anticipated that US bond yields would rebound. Indeed, they have. During December, we expected a stock market correction at the start of the new year. So far, there has been a significant pullback in almost all of the major stock market indexes since the S&P 500 peaked at a record high on December 6, 2024 (chart). Some of these pullbacks, which are 5%-10% declines, could turn into corrections of more than 10% but less than 20% this coming week if Tuesday's CPI inflation rate for December is higher than expected, causing the 10-year Treasury bond yield to revisit 2023's high of 5.00%.

We aren't changing our forecast of 7000 on the S&P 500 by the end of the year. We still believe that the 10-year Treasury bond yield should trade mostly between 4.25% and 4.75% this year. So we think that the selloffs in the stock and bond markets are buying opportunities.