China's 10% Plunge: The Hidden Lesson in Stimulus Cycles

It’s a very busy period: Earnings, China, Middle East tensions…

But the key thing flying under the radar: The 10-year U.S. bond is back above 4% for the first time in two months. 

How does this impact our Equity Signals?

The S&P 500's MACD has turned negative, pushing against the 20-day moving average. The RSI and MFI are neutral. The Russell is looking worse. 

When bond yields rise, bond prices fall… which impacts collateral quality worldwide. Think back to October 2023 when the 10-year hit 5%. The market cratered. It’s not just that money flows into bonds… individuals use bonds to secure loans, repo agreements, and other financial transactions. An uptick in rates impacts credit and liquidity origination.

Global Capital Watch 

• Liquidity has been rising all year - but we must pay close attention to the 10-year yield curve. As noted, we’re looking for this cycle to peak next year. The real problem is that U.S. bond yields will eventually have to increase as bond traders, at some point, must go “vigilante” on the U.S. debt system and demand higher returns for the associated risk of inflation and surging interest payments. I would argue that this is the next crisis that America will face financially: A bond vigilante buyer’s revolt - sometime in 2026. 

Insider Buying: 

• Insider buying is still weak. $9.9m in Buys vs $879m in Sells.

• Top Buy: $6,000,000 (LIFECORE BIOMEDICAL INC.)

• Top Sell: $383,039,000 (BANK OF AMERICA CORP by BERKSHIRE HATHAWAY INC)

Market outlook:

• Futures edge higher as the focus shifts to inflation data and earnings; after a recent surge, Treasury yields stabilized around 4%.

• Volatility rises with VIX at a one-month high; investors eye Fed speeches, FOMC minutes, and Thursday's CPI report for clues to the Fed's rate decision.

• Hang Seng plunges 10% as China returns from holiday, with stimulus disappointment rippling through global markets.