See how interest rates decision drives current market!

Stocks opened lower and remain in the red through midday Thursday. The S&P 500 is down 8.95 points to 2110.17 after a three-day 20-point jump to 2016 highs.

Treasury bonds are seeing notable strength, however, and the yield on the benchmark ten-year has dropped to three-months lows of 1.66%.

Commodities are seeing mixed action. While crude oil is off 56 cents to $50.67, gold gained $9 to $1271.50.

Nine of ten market sectors are lower on Wall Street, led by losses in Financials (XLF), Telecomm (IYZ), and Basic Materials (XLB). Utilities (XLU) are bucking the bearish trend.

CBOE Volatility Index (VIX) is up .54 to 14.62 and options volumes are running at the best pace so far this week. Roughly 3.1 million calls and 3 million puts traded across the exchanges in the first two hours. Projected volume for the day is 14.6 million and slightly more than the one-month daily average, which is now 14.1 million contracts.

The six most active option contracts through midday Thursday are put options on exchange-traded funds, being led by iShares Emerging Markets Fund (EEM) Jul 34 puts, iShares Small Cap Fund (IWM) Jul 110 puts, and SPDR 500 Trust (SPY) Jun 10th Weekly 210 puts.

The increased interest in ETF puts reflects a more cautious underlying tone Thursday morning and the shifting sentiment in global bond markets is partly to blame. While the yield on the benchmark ten-year is falling to three-month lows, the chart below shows shares of the iShares Longer-term Bond Fund (TLT) ripping higher in the past few days and set to close at multi-year highs. TLT holds a basket of Treasury bonds that mature in 20+ years and moves opposite to longer-term yields.

See Tradespoon’s Stock Forecast on iShares Long-Term Treasury Bond Fund (TLT)

Tradespoon’s Stock Forecast on iShares Long-Term Treasury Bond Fund (TLT)

Falling bond yields in recent weeks seemed to be one factor helping the S&P 500 climb to 2016 highs. After all, falling yields seemed to reflect the view that Federal Reserve policy would likely remain unchanged at the June meeting next week and at the July meeting as well. That is, the bond market was taking expectations for immediate rate hikes off the table.

The sharp drop in yields in recent days, however, might be sending a different, less bullish, message. On the one hand, the trend is certainly weighing on the financials, which are Thursday’s worst performers.

Second, falling yields is part of a larger trend. UK’s gilt yield hit record lows of 1.22% Thursday and Germany’s bund yield is very near to turning negative.

For an equities market driven higher by hopes of an earnings recovery in the second half of 2016, the negative economic connotations associated with falling global bond yields certainly has important implications heading into the FOMC meeting on the 15th. In short, falling yields might no longer be perceived as good for the equities market, but rather bad.

As for the S&P 500, there’s short-term support areas at current levels of 2110, then 2105 and the 2100 level. Resistance at 2115, 2119, and 2125.