Why stocks haven't collapsed despite rising interest rates: It's not that they were bought, but that there were no sellers

Continuing from yesterday. The rise in interest rates did not stop.

The day after the PMI, the 10-year Treasury yield rose further, and the 30-year yield also climbed. The fact that long-term interest rates have risen this much indicates a strengthening view that “high interest rates are likely to persist for a long time.” Normally, this is a heavy burden for stocks, making them prone to falling.

In fact, the U.S. market was volatile. But it has not collapsed.

Why? There is only one answer: it is not that buying came in, but that selling did not occur.

What was visible in futures versus spot markets was different

Nasdaq 100 futures once plunged significantly, then recovered, and ended almost unchanged. It formed a long lower shadow from the low to the close, a so-called hammer shape. Trading volume increased at this time. Selling pressure emerged to push it down, and buying came in to push it back up. This is the story for futures.

However, looking at the spot market for the same day, the Nasdaq 100 ETF, the story changes. The opening price was low, and it recovered from there, looking like a strong candle. But trading volume decreased.

The fact that it recovered on lower volume means that buying did not come in. It is just that no additional selling occurred.

Comparing these two reveals the nature of the current market. No major selling has emerged due to the sharp rise in interest rates. Instead, the market is swaying up and down, centered on futures that trade 24 hours a day. Normally, since a negative factor like interest rates appeared right after a breakout to the upside, one would expect profit-taking selling to appear in the spot market as well. So far, it has not.

The reason it hasn’t collapsed is because of polarization

On the side that hasn’t collapsed are the major technology stocks. Because they have deep cash reserves and a solid foundation of a strong economy, they are seen as less susceptible to interest rate impacts. They have the strength to resist rising interest rates.

On the other hand, there is a side that is collapsing: the Russell 2000, which represents small and mid-cap stocks. They are falling as they take the direct impact of the sharp rise in interest rates. This is the “normal reaction” that should occur when interest rates rise.

In other words, it is polarization. The reason the Nasdaq is not showing a normal reaction is that the strength of the mega-tech companies is resisting the interest rates. Semiconductors and memory stocks are also rising, but trading volume is low. It is not that buying is coming in; it is just that there is no selling here either.

Gold has not collapsed either. As an asset that does not pay interest, it is inherently weak against rising interest rates. Yet it is holding up. There is no sense that risk money is fleeing at the moment.

It was not yen depreciation, but dollar appreciation

There is one more thing that concerns me.

As a result of rising interest rates, the exchange rate has broken past 158 yen. It is a situation where the rate, which had been brought back to the 150-yen range through currency intervention, has returned in one go.

However, I see this not as “the yen being weak,” but as the dollar being strong.

I am looking at the dollar index, DXY. It represents the relative strength of the dollar against major currencies; the dollar is being bought due to rising interest rates, causing it to jump significantly. Europe is dealing with various issues, including supply problems in the Middle East, so the euro is not strong. Interest rates are also rising there. Money is gathering in the dollar.

If it were only the yen that was weak—a “yen-only depreciation”—we would be talking about intervention again. But the current yen depreciation is the flip side of dollar appreciation.

Furthermore, the U.S. does not want a strong dollar. The dollar index has reached its previous high range. At this point, the room for the Treasury Department to take action against a sharp rise in long-term interest rates is actually increasing. Perhaps that expectation is one of the reasons why stock prices have not collapsed. I cannot hold onto faint hopes, but I think it is worth watching to see if such movements are emerging.

Stocks that only rise on days when someone buys

Finally, one observation. This is not a recommendation for any specific stock at all. Given my position in the advisory business, I will not write about individual outlooks. What I want to write here is just a ‘perspective’.

Many people are currently paying attention to memory semiconductors. Micron Technology will announce its earnings next week on the 30th. Before that, some interesting movement has appeared in the stock price of SanDisk, the leader in the same memory sector.

It fell significantly in the previous phase and is now recovering. What we look at here is the volume and the candlestick chart.

SanDisk only rises on days when large buy orders come in. A bullish candle appears on days when volume significantly exceeds the average, and if you connect the lows of those days with a line, it has been steadily rising. Conversely, it falls on days when no buying comes in. In other words, the natural downward pressure is weak. Even though it is an environment where it would be easy to sell if nothing happened, someone keeps picking it up. This has been the movement for the past two months.

If multiple institutions were involved, I don’t think it would result in such clean movement. Are they buying peers ahead of Micron’s earnings, or is someone with a strong view on SanDisk itself accumulating it? I don’t know. Precisely because I don’t know, I want to check the answer after the earnings announcement.

When movement that feels out of place occurs, is it an opportunity or a warning? I believe it is more beneficial to watch it together in real-time and turn it into experience rather than talking about it in hindsight.

I will continue to monitor this fixed point.