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Hello, welcome back to the Note. Well, after a relatively calm week by recent standards,
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We can at least I think say one thing which is the market is now thoroughly prepared for a rate rise from the Feds next month.
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And its attitude in turn means that it becomes that much easier for the Feds to go through with raising rates
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as it plan it wants to do. What we're looking at here is the yields on the two-year Treasury bonds.
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Obviously, two-year yields are extremely closely linked to the near-term future for interest rates.
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And you can see that it hits a new five-year high today. Plainly, people are prepared for an interest rate rise
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very soon in a way that haven't been throughout the great loan era of QE that is followed the crisis.
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Now if you take a look at other markets, the US stock market is hovering very close to its heights as it appears back in positive territory of the year.
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If you take a look at foreign exchange of emerging markets, it's a critical reason why the Feds stayed its hands early this year.
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Those are at least stable and above their lows from earlier this year. That doesn't seem to be any great weight
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pushing in the market towards the Fed from rising rate as it wants to do.
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Now that's positive because there're other reasons for great concern about the US stock market.
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It is very narrow. If we take a look at this next chart, which compares the Russell Top 50, in that it says
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that's the 50 biggest companies in the US by market cap. Compared to the Russell 2000 in next smaller companies,
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you can see that's during most of the big rally following the crisis, smaller companies emphatically outperformed what you would expect.
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That is firmly in reverse now. The Mega-Caps are outperforming, that is generally a sign
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either that's a bull market that's coming to an end, or indeed that the bear market is effectively already on the way.
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The advance is very narrow at this point, it's limited to a few very big companies.
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Indeed, all of the advance in the S&P for this year can be counted for simply by Amazon and the Alphabet stocks that underpinned google.
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Just take away Amazon and Google, and the rest of S&P is utterly flat for the year.
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So, as we enter a week when the American will be giving thanks, I think the bottom line is that we can be thankful
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that we do appear, at last, ready to bring an end to the era of lower rates.
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But we also need to be a little fearful that the stock market appears ready to roll over into a bear market.