Analysis: AWK

*The 10-year Treasury yield once again is moving higher this morning

*Fed comments sparked that move yesterday and could do so again today, keeping a lid on stocks

*We will be mindful of that impact as well as technical hurdles as we move through the coming days

*That renewed discipline will see us exit our utility position later this morning

Once again it looks like the market will be in the thrall of the 10-year Treasury yield. As we discussed yesterday, that move has punished small-cap stocks, with the Russell 2000 declining 0.3% year to date as of last night's market close. Utilities and other rate-sensitive sectors also have been hard hit over the last several weeks and our shares of American Water Works (AWK) closed below our $120 line in the sand. That will see us exit the position when the stock market opens later this morning.

Before we get to that, we will have another round of comments by Fed heads coming at us here on Tuesday. Setting the stage for those remarks, Cleveland Fed President Loretta Mester shared on Monday that the Federal Reserve may need to raise the federal funds rate one more time in 2023 and then "hold it there for some time." Also yesterday, Federal Reserve Governor Michelle Bowman said she remains willing to support another increase if incoming data show progress on inflation is stalling or proceeding too slowly.

Those comments stoked the "higher for longer" view on the fed funds rate, lifting the 10-year Treasury yield along the way to its highest level in about 15 years. In terms of when the market sees the first rate cut, the CME FedWatch Tool tells us that isn't expected until July of next year.

All of the above sets the stage for Atlanta Fed President Raphael Bostic, who will be speaking at 8 a.m. ET today at a Leadership Atlanta roundtable event, as well as for other Fed officials making the rounds later this week. Should Bostic's comments reinforce those from Mester and Bowman, we're likely to see Treasury yields and the dollar continue to be a headwind for stocks. 

On the data front, we have the September ADP Employment Report, September Services/Non-Manufacturing PMIs, and the September Employment Report. Quite a bit to chew on, and it's going to keep folks in a cautious stance for the next few days. We'll keep our inverse ETFs in play, and as we did yesterday, we will be mindful of the technicals and will take needed action as warranted.

At the time of publication, Action Alerts PLUS was long AWK.