US Stocks rose on Monday, marking the start of a week shortened by the holiday, but a market observer closely watching indicated that for the stock market to smoothly recover its rebound, cooperation from the Bonds market and the USD is essential.

According to Tom Essaye, the founder of Sevens Report Research, both the USD and US Treasury yields continued their recent upward trend on Monday, and the current trading levels offer no benefits for stock market bulls. Last week, after the Federal Reserve hinted that the rate cuts in 2025 would be less than policy makers had previously expected, both the USD and US Treasury yields surged.

In a report on Monday, Essaye stated that the USD is a "slight" headwind, the 10-year US Treasury yield at recent levels is "moderate," but as they continue to rise, this will evolve into a more serious issue.

Meanwhile, Analysts noted that the inversion in the US Treasury yield curve completely ended last week. In other words, the curve returned to a normal shape, with long-term US Treasury yields being higher than short-term US Treasury yields, ending a prolonged period of inversion.

The inversion between the 3-month Treasury bill and the 10-year US Treasury yield has historically been seen as a reliable indicator of economic recession. However, as the US economy continues to show resilience, the prolonged inversion of this curve has raised doubts about its predictive capability. Analysts also pointed out that the reversal after the inversion of US Treasury yields usually more directly signals an economic recession.

Lisa Shalett, Chief Investment Officer of Morgan Stanley Wealth Management, believes that the significance of the end of the inversion between the 3-month Treasury bill and the 10-year US Treasury yield is that it may mean investors "finally understand that the anti-inflation growth model that has driven economic growth for the past 15 years is giving way to a nominal growth model of re-inflation."

This indicates that long-term Stocks valuation will eventually decline, Shallett wrote in a report on Monday.

Higher long-term USA Treasury yields are viewed as a negative factor for the stock market, largely because they make it harder for USA Stocks to justify their high valuations.

Essaye believes that the trends of the USD and USA Treasury yields could be crucial for whether the stock market can stabilize quickly.

Most importantly, calm MMF and Bonds markets are what the stock market needs to continue rebounding, and last week was quite the opposite. The sooner these markets stabilize (indicating a drop in USD and 10-year USA Treasury yields), the more favorable it will be for the market (some reassuring data or statements from the Federal Reserve about their continued commitment to lowering rates would help this effort), he wrote.

Editor/rice