US 2-Year Yield (top), Dow Jones Industrial Index
Could the yield on the 2-year note send important messages about the future direction of stocks? It has in the past and could so again.
The top chart looks at the yield on the 2-year note over the past 37 years. When the 2-year yield hit resistance and turned lower in 2000 and 2007 at each (1), interest rates and stocks both fell a large percentage.
At this time, yields are testing 37-year resistance as the Dow tests the top of a 20-year rising channel.
If 2-year yields turn lower and break support at (2), odds increase that stocks will turn weak. Keep your eye on what bond yields do in the next few weeks as they could be sending a key message to the stock market.