Stocks Struggle Against Higher Bond Yields

Stocks may have had a wondrous January, but February is shaping up to be a story of a different kind.

Not only have yields on all manner of bonds risen with alacrity over the past three weeks, they show no signs of slowing, especially since the Federal Reserve has sent a signal to markets that the federal funds rate is going to be upped at last three times this year, the first hike scheduled at the next FOMC meeting in March.

Higher bond yields make stocks look less attractive by comparison, being that they are virtually without risk, as opposed to stocks, which can rise or fall on whims, trends, poor performance of the underlying companies, or without cause, simply because a company or a sector is "out of favor."

As the 10-year note created above 2.70% earlier in the week, stocks suddenly became not so much of a bargain, especially since valuations have been egregiously stretched as the nine-year-long rally in equities has exceeded all reasonable valuation metrics.

Countering the argument are the voices from the Trump train touting the meteoric rise in stock prices over the past year, and, certainly, the economy is in better condition than it was 12 months ago.

But, a strengthening economy has headwinds, such as higher wages and costs due to inflation, and that's being caused by the endless printing of fiat and buying of securities outright by central banks, which has distorted the landscape of global economics.

The rush to safety has begun, and, once started, such a trend is not easily pushed back. Investors should prepare for a sea change which will wipe out gains that have been largely the result of central bank intervention and stock buybacks by inefficient corporate managers.

At the Close, Thursday, February 1, 2018:
Dow: 26,186.71, +37.32 (+0.14%)
NASDAQ: 7,385.86, -25.62 (-0.35%)
S&P 500: 2,821.98, -1.83 (-0.06%)
NYSE Composite: 13,381.97, +14.01 (+0.10%)

Stocks Rocked, Presdient Trump Stick-Saves with SOTU

There shouldn't be too much in the way of analysis seeking a rationale for Tuesday's smash-crash in global equity markets.

With treasury's 10-year-note rocking beyond 2.70%, bonds are coming back into favor as investments with little risk, as opposed to over-inflated stocks buoyed by buybacks.

Profit-taking being mostly a participant sport, sellers piled into the pits, sending previously-favored issues down for a second straight session. After the markets closed for the day, life returned to some semblance of normalcy, awaiting disruption, caused primarily by President Trump's stirring State of the Union speech (and the pouting Democrats lack of response).

Trump delivered for his base, as usual, leaving a feeble Joe Kennedy III drooling out the Democrat response, a vain, ineffective attempt to continue undermining the administration's attempts to bring America back to a place of dominance, reverence, and prosperity.

The shock-selling on Monday and Tuesday should likely fade as business continues gearing up, though the path will be made more difficult for the Fortune 500 types as interest rates ascend.

Perhaps investing will return from an overcrowded type of algo-chasing, bid-stuffing, front-running mosh pit to a semi-science based on math skills, management, and fundamental analysis.

Perhaps it will not, but, by all outward appearances, President Trump, at least has the right kind of ideas to move the country - and industry - forward.

At the Close, Tuesday, January 30, 2018:
Dow Jones Industrial Average: 26,076.89, -362.59 (-1.37%)
NASDAQ: 7,402.48, -64.02 (-0.86%)
S&P 500: 2,822.43, -31.10 (-1.09%)
NYSE Composite: 13,375.51, -149.14 (-1.10%)

Wall Street's Monday Blood-Letting Leads to Global Calamity in Equities

US equity markets were roiled Monday as the dollar jumped and bonds sold off, pushing yields higher, especially on the short end of the curve.

The two-year treasury finished the day at 2.09%, the five at 2.47%, and the benchmark ten-year note briefly touched 2.70% before dipping back to 2.68%. For perspective, consider that the five-year treasury was yielding 2.19% and the ten-year, 2.39, just a month ago. Those are significant moves and, apparently, the stock market has now taken notice as fixed investments begin offering yields competitive with stock dividends, at least.

For more perspective, the S&P and Dow averages suffered their worst one-day drops since early September. The percentage was just two-thirds of a percent on both indices. That shows just how decisive the rally since the election of Donald J. Trump as president has been. There has not been on single-day one percent decline on either in well over a year.

If a sea change in sentiment is occurring, Tuesday's trade could be a determinant day. Futures are pointing well lower and the VIX is cresting over 14 in the US, while global markets are a sea of red.

Japan's NIKKEI was down nearly 1.5%. The Hang Song was off over one percent. European bourses are uniformly lower at their midday.

As the nation prepares for President Trump's first State of the Union speech Tuesday night, more focus could be on internal DC politics, especially the readying for release of the troubling, explosive memo penned by the House Intelligence committee.

On Monday, the Intel committee voted along party lines to declassify the four-page missive. The president has five days to release the memo or keep it classified. Opinion and timing see Thursday as the likely eventual release.

With the FOMC set to keep rates unchanged on Wednesday (the meeting opens Tuesday), that may be the only thing that doesn't change this week.

At the Close, Monday, January 29, 2018:
Dow: 26,439.48, -177.23 (-0.67%)
NASDAQ: 7,466.51, -39.27 (-0.52%)
S&P 500: 2,853.53, -19.34 (-0.67%)
NYSE Composite: 13,524.65, -112.37 (-0.82%)

Stocks Soar Through January; Big Week Upcoming

Stocks staged their best cumulative effort of the new year, as January equity returns continued to explode through the final full week of trading in the United States.

Making the gains all the more impressive is the fact that the month has seen only 18 out of a possible 20 trading days, due to the New Year and MLK holidays falling on Mondays. Three more sessions to start the new week will conclude January trading.

Stocks have been the major story of the year thus far, along with the continued decline of the US dollar against other major currencies, especially the Yen, Euro and British Pound.

President Donald J. Trump returned from Davos over the weekend, preparing for his first State of the Unions address to congress on Tuesday night.

Also of note this week is the FOMC policy rate meeting of the Federal Reserve. While the Fed is not expected to raise key interest rates at this meeting, there's general impetus for a planned rate hike at the March meeting. The FOMC meets on Tuesday and Wednesday, January 30 and 31. The March meeting is March 20-21.

The week concludes with the January Non-farm Payroll release by the BLS on Friday, Feb. 2. The data release includes publication changes related to the annual sample review and the conversion to NAICS 2017.. Expectations will be high, given the explosive nature of the stock market and recent touting of strong economic growth by President Trump.

At the Close, Friday, January 26, 2018:
Dow: 26,616.71, +223.92 (+0.85%)
NASDAQ: 7,505.77, +94.61 (+1.28%)
S&P 500: 2,872.87, +33.62 (+1.18%)
NYSE Composite: 13,637.02, +124.36 (+0.92%)

For the Week:
Dow: +544.99 (+2.09%)
NASDAQ: +169.39 (+2.31%)
S&P 500: +62.57 (+2.23%)
NYSE Composite: +252.56 (+1.89%)

Dow Soars

Really?

At the Close, Thursday, January 25, 2018:
Dow: 26,392.79, +140.67 (+0.54%)
NASDAQ: 7,411.16, -3.89 (-0.05%)
S&P 500: 2,839.25, +1.71 (+0.06%)
NYSE Composite: 13,512.66, +5.00 (+0.04%)