Summary

As we said earlier in the week, the stock market saw gains from the collapse in crude oil prices and from surprise comments made by several Federal Reserve governors about rate cuts. Governor Michelle Bowman said she favors a cut in the fed funds rate at the next meeting in July, and that stance aligns with Governor Christopher Waller, who also favors a July cut. Treasury yields across the curve have fallen 20 to 30 basis points (bps) from their May highs. With the two-year yield at 3.73%, the Treasury market is currently 52 to 77 bps lower than the fed funds target rate of 4.25%-4.5% and, therefore, primed for a couple of 25-bps cuts in the future. Still, the CME FedWatch Tool is showing a 77% chance that the Fed holds rates steady at the July 25 meeting. There is a 74% probability of a 25-bps cut on September 17. The iShares 20+ Year Treasury Bond ETF (TLT) has bounced since hitting an intraday low of $83.30 on May 22 (its lowest level since October 2023). TLT has traced out a bullish false breakdown and an Arbeter's Fish Hook Bottom that started in early April, and has busted through its falling 50-day exponential average. The next chart resistance is from the last pea