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Not all roads will lead to inflation



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Dow up slightly; Nasdaq, S&P 500 now ~flat

Comm Svcs leads S&P sector gainers; Tech weakest group

Dollar, bitcoin dip; gold rises; crude up >1.5%

U.S. 10-Year Treasury yield edges down to ~4.26%

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NOT ALL ROADS WILL LEAD TO INFLATION

Up until Tuesday, investors had recently had a dearth of market catalysts, with earnings season only just starting and a relatively quiet period of economic data.

On Monday, U.S. Treasury yields continued their recent ascent higher despite an empty economic calendar for the day. The fact that yields have risen even on days with no economic data means the bond market is likely focusing on the election, said Matt Miskin, co-chief investment strategist at John Hancock Investment Management in Boston.

With betting markets showing the odds of Donald Trump winning the U.S. presidential election increasing, longer-dated yields have risen on the idea that his likely policies of tax cuts and tariffs will increase inflation.

However, Miskin sees several disinflationary drivers that remain intact, which he said the bond market is not seeing right now due to the election focus.

Miskin noted wage growth is decelerating, as average hourly earnings are now just under 4% year-over-year, and the quit rate has "fallen meaningfully" and currently labor market trends will likely lead to continued deceleration in wage growth, which in turn means less pricing power for companies.

Another factor is rising housing supply, which could cause the gains in house prices to slow further. Lastly, he notes that with the exception of gold, commodities are not rallying and in order to see an inflation wave like that of the 1970s, crude would have to meaningfully rise.

Miskin said that while we don't yet know who will win the election, he knows that equity valuations are elevated relative to the 20-year average, but bond yields are cheaper over the same time frame. As such, he is "not making big bets, waiting for value in higher risk market segments" and said he would push back against the reflation impulse in markets, possibly putting cash to work in bonds at these higher yield levels.

(Chuck Mikolajczak)

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FOR WEDNESDAY'S EARLIER LIVE MARKET POSTS:


STOCKS HAVE GULPED DOWN GAINS, BUT THE GLASS STILL LOOKS HALF FULL - CLICK HERE


HUMP-DAY DATA DELUGE: GDP, ADP, PENDING HOME SALES, MORTGAGES - CLICK HERE


U.S. STOCKS EDGE UP AS DATA, EARNINGS POUR IN - CLICK HERE


S&P 500 INDEX: CAN IT REKINDLE ITS SPIRIT? - CLICK HERE


A GOLDEN YEAR - CLICK HERE


TRUMP MEDIA PRIMED FOR SHORT SQUEEZE DAYS BEFORE U.S. ELECTION - CLICK HERE


SMALL CAPS' STRUGGLES - CLICK HERE


STOXX AT FIVE WEEK LOW - CLICK HERE


EUROPE BEFORE THE BELL: RESULTS FIRST, BUDGET LATER - CLICK HERE


BUDGET, GDP AND TECH EARNINGS - CLICK HERE



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