Nasdaq falls from the highs but still on track for fifth straigh day of gains

US equities are off the highs but still comfortably into positive territory on the day. The S&P 500 is up 0.7% and the Nasdaq up 0.9%.

It’s set to be the fifth straight day of gains and comes despite a disappointing earnings report from Apple.

The driver in equities and broader markets is the same as it has been for the past three months: Bonds.

Yields have been tracking higher during most of that period but abruptly reversed this week and have continued lower following the Fed decision and non-farm payrolls. US 10-year yields are now more than 50 bps below the cycle high set in late October.

The reversal in bonds could help set a lasting bottom for stocks if negative news for the economy continues to point to a return to 2% inflation. That would give the Fed leeway to cut rates later next year. I believe the market can tolerate a recession so long as it it’s not harsh or includes a financial crisis component but that’s a fine line. At some point the market will no longer cheer bad news but I think we’re — at minimum — a few months away from that.

It’s also important to note that we’re now through the bulk of US earnings and so that takes away a key risk to equity markets. The numbers were mixed overall. There hasn’t been any overall theme of warnings about orders or consumers so we’ll wait and see what unfolds in the weeks ahead.