Watch How SHY Trades After the Jobs Report

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I want to again point out that, although I’ve heard the opposite lately, both stocks and interest rates can rise together going forward.  As I pointed out about two weeks ago, the key difference between this recent rise in yields and the May-August rise in yields is that this time, the “short end” of the yield curve hasn’t sold off (it has actually risen).  And, that implies the market is more comfortable with the idea of higher interest rates, and that this recent rise in rates, and subsequent steepening of the yield curve, isn’t a “rally killer” for stocks. 

But, for stocks to keep rising amidst rising yields, that short end needs to stay anchored.  So, watch how SHY (I-Shares 1-3 year Treasury ETF) reacts if the jobs number is better than expectations.  If SHY doesn’t sell off with other bonds, that’s bullish for stocks.  Conversely, if we start to see SHY drop over the coming days/weeks, that will be a signal that rising yields are becoming a headwind on equities, and a sign to get more cautious.    

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