Rising Rates and Seasonality Keep Market on Edge Ahead of Key Events

The market is struggling to cope with rising interest rates, which has been exacerbated by negative seasonality. This combination of factors is likely to keep prices choppy in the coming days.

Last week, yields surged to levels not seen since 2007, before Treasury Secretary Scott Bessent announced that the government would accelerate its buyback of longer-dated bonds and issue shorter-term debt instead. However, this relief was short-lived, as the 10-year yield finished the week at 4.74%, four basis points higher on Friday alone.

One possible explanation for the surge in yields is that technology companies are bidding up interest rates by borrowing to invest in artificial intelligence. This could be seen as a sign of accelerating economic growth, rather than inflation fear. However, even if this is the case, rising yields driven by AI borrowing still raise the cost of data center construction and put pressure on hyperscalers competing for capital.

Nvidia's upcoming earnings report is expected to be a major market mover, with analysts projecting record sales of $92 billion. However, even an exceptional report may not trigger a sustained uptrend, given the ongoing rate problem and seasonal pattern. Instead, it could create volatility, which might be useful for creating dislocations in price.