European shares ended the week with a dip, although the overall share prices rose during the week. Today’s closing showed drops in various European markets: the German DAX fell by 0.82%, France’s CAC lost 0.92%, the UK’s FTSE 100 declined by 0.38%, Spain’s Ibex dropped by 0.94%, and Italy’s FTSE MIB fell by 1.11%. Despite the losses today, the weekly performance showed gains: the German DAX increased by 1.97%, France’s CAC went up by 1.73%, the UK’s FTSE 100 gained 1.34%, Spain’s Ibex edged up by 0.26%, and Italy’s FTSE MIB rose by 1.15%. The German DAX came close to a weekly record, finishing at 24,255.32, while the UK FTSE 100 reached a new record high at 8,941.13. As European markets closed, US stocks dipped. The Dow industrial average dropped 343 points to 44,311, marking a 1.15% weekly decline. The S&P index fell by 22.57 points to 6,257.99, a 0.34% weekly decrease after hitting new highs. The NASDAQ index declined by 14.19 points to 20,616.88, but it gained 0.08% for the week after setting record highs. US yields have increased, affecting stocks. The 2-year yield rose to 3.899%, the 5-year to 3.981%, the 10-year to 4.415%, and the 30-year to 4.948%. Weekly changes in yields include a 1.6 basis point rise for the 2-year, 4.1 for the 5-year, 6.5 for the 10-year, and 8.6 for the 30-year. The current market situation shows mixed behavior: declines into Friday’s close after earlier gains. Although index levels retreated from highs, they did not erase the increases seen earlier in the week. German stocks, for example, are close to historical levels, while UK large caps have reached new heights. Similarly, US indices are showing a blend of short-term drops amid longer-term gains. The rise in US yields during this period highlights the factors influencing risk asset prices. Although the changes were not large, they consistently moved higher, especially at the longer end of the yield curve. This trend is starting to affect asset rotation, particularly in interest-rate-sensitive or heavily leveraged sectors. The increase in yields is making valuations more significant, especially as bonds and stocks typically react differently to economic data. This bond commitment suggests a more cautious approach elsewhere, especially with high valuations in tech and growth stocks. Looking beyond closing values, markets seem to be adjusting their comfort levels with both rising equity multiples and rates. Powell did not provide new direction this week, but the bond market appears to be recalibrating expectations for a delay in rate cuts. Traders are starting to adopt this outlook. It’s important to recognize any misalignments in expectations. With rising yields and repeated testing of record equity levels, we need to consider how much higher equities can go in the short term without new catalysts. Friday’s movements indicate that much of the positive momentum might already be priced in—for now. From our perspective, the immediate setup suggests more two-way trading. While there’s been considerable strength in the broader market, some soft spots are emerging. Sector rotation is ongoing—cyclicals are outperforming defensives on some days, then reversing quickly. This indicates that traders are unsure and waiting for clearer macro signals. With the 10-year yield close to 4.42% and the 30-year nearing 5%, funding pressures might emerge in areas less equipped to handle them. This week, the higher end of the yield curve has been more significant than short-term yields, impacting trade setups and timing more directly. Traders using leveraged products or adjusting their volatility strategies should carefully monitor liquidity in the early part of next week. We’ve seen sharper and faster intraday reversals, signaling less depth in the markets. This is a warning sign. It suggests the need for quick positioning and potentially higher cash balances. Attention should remain on unexpected macro news and any data that could indicate persistent inflation. We’ve noted that small changes in yields now hold more significance than they did a month ago. Compression trades in interest-rate-sensitive sectors could unravel quickly if this trend continues. In options markets, implied volatility has remained low, but there has been a subtle increase in skew over the past week. This indicates a greater use of downside protection, while complacency persists at the top of indices. We are also watching put/call ratios rise again—not to alarming levels, but enough to signal a shift in sentiment. Be ready for directional and thematic reversals, and pay close attention to positioning.

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