The bond market is sending investors another signal as higher short-term interest rates reshape the U.S. Treasury yield curve.
In the latest Markets in Motion, StoneCastle Investment Management portfolio manager Bruce Campbell examines the spread between two-year and 10-year Treasury yields, changing expectations for Federal Reserve policy and where momentum is emerging across U.S. equity sectors.
This article is being disseminated on behalf of StoneCastle Investment Management, a third-party issuer, and is intended for informational purposes only.
The two-year/10-year spread is beginning to climb, but Campbell is watching closely for any move below zero, which can signal expectations for weaker economic conditions.
The latest Fed rate increase has also shifted attention toward the final months of 2026. Market pricing presented by Campbell points to roughly 1.3 additional hikes by year-end. With only two meetings remaining, that figure reflects probabilities rather than a literal forecast of the number of moves.
Inflation could ultimately determine what comes next.
Smart money sentiment begins to change
Another indicator catching Campbell’s attention is SentimenTrader’s Smart Money/Dumb Money Confidence Spread.
After a period in which smart money confidence became notably pessimistic, the indicator has now crossed back above dumb money confidence.
Campbell cautions investors to remain aware of what that shift could mean rather than treating it as a standalone market signal.
The change comes as investors continue to navigate higher interest rates, inflation uncertainty and significant differences in performance between sectors.
Energy remains strong as financials turn lower
Relative rotation data shows U.S. energy continuing to demonstrate strength, while financials have started moving in the opposite direction.
Technology is another sector Campbell is watching closely.
After recent weakness, some Magnificent Seven stocks have begun turning higher. Campbell says the next question is whether that movement develops into a broader improvement in technology momentum.
North of the border, materials remain among the stronger areas of the Canadian market. Despite fluctuations in gold and copper prices, Campbell notes that a number of copper stocks are breaking to new highs.
Canadian energy is also showing improving momentum, while financials are beginning to slow following a strong run for the country’s banks.
With rate expectations still shifting and inflation likely to influence the Fed’s next move, Campbell sees the yield curve, sentiment and sector rotation as three areas investors should continue watching as markets move toward the final quarter of the year.
Watch the full episode above for Bruce Campbell’s analysis of Treasury yields, Federal Reserve expectations, investor sentiment and sector rotation.