Higher for Longer Until "Something" Breaks

With stronger than expected GDP, uniform passing of stress tests by banks, and weekly jobless claims posting the biggest drop in twenty months, bulls seem to be in the "have our cake and eat it, too" mindset. 

However, in economics there is always a price to be paid. 

Here, rates must go higher, even as Powell and his band of merry printers at The Fed took a pause or skip earlier this month at the FOMC by not raising further. I have posted the chart of the TNX (Index for Rates on the 10-Year Note) quite a bit in recent months, and for good reason--We have looked at it with Members on multiple timeframes. 

In particular, the monthly chart continues to show a coiled, tight, attractive bull flag with seemingly few folks calling for said flag to uncoil higher. Should that materialize--and today's action is a strong step in that direction--I suspect it will finally be the straw which breaks the Nasdaq's back. 

While a deep recession may not be imminent, recall all last decade we were told that the market is not the economy, and vice versa. We were told as much when stocks kept pushing higher while the economy was barely limping along. Now, we have a robust, resilient economy with an expensive, one-way, narrow, extended stock market, completely complacent at the prospect of rates staying higher for longer. 

The nonstop dip-buying may help numb the cognitive dissonance most market veterans feel. But eventually as rates pressure point higher, not unlike oil's spike into the summer of 2008, stocks will crack.

Much has been said about Powell not making a policy error by continuing to raise rates. But the real error was pausing earlier this month. He should not have fallen behind the inflation curve. And if rates now take off higher with him dragging behind it will be a damning blow to The Fed's waning credibility. 

The tangible level here is 4.0% on the 10-Year. Back above there and I am looking for many "things" to start "breaking."