Hi Everyone,
Nearly all of the main sectors finished the day with gains, but the impact of rising Treasury yields was apparent following yesterday’s Fed announcements. Rate-sensitive real estate stocks and utilities lagged the large-cap benchmarks, with tech stocks also underperforming most of the key cyclical sectors. Financials, energy stocks, and industrials shined throughout the day thanks to improving investor sentiment, and while the Dow continues to be weaker than its peers from a technical perspective, the industrial average is finally starting to show signs of life.
Traders said that today’s significant technical progress could mean that the major indices will soon test their all-time highs again. As one trader explained, “The key breadth measures got a huge boost today thanks to the rally in small-caps, the Volatility Index (VIX, -10.4%) dropped back well below the widely-watched 20 level, so if the Nasdaq and the S&P 500 can hold up above their 50-day moving averages, the bull market could soon be back on track.”
Treasury yields rose for the second day in a row following the Fed’s slightly hawkish surprise, with the short-end of the yield curve, in particular, pushing higher today. The Bank of England also held its monetary meeting today, leaving its benchmark rate and asset purchases unchanged, but the BOE’s growth projections were revised lower. Central banks in the developing world face the same issue – rising inflation and weaker growth – which could lead to a volatile period in global financial markets due to the rising uncertainty.
Shares of Evergrande skyrocketed by nearly 20% today in Asian trading, removing one of the major immediate risk factors, a messy default, threatening the global risk rally. Chinese authorities seem to be preparing for several scenarios concerning the company’s future, but an unstructured default seems highly unlikely, so a feared “Lehman-like” collapse is likely off the table. That said, even a “soft” default could weigh on Asian markets in the coming months, which could hurt global growth amid the continued supply chain strains.
“Some people dream of success while others wake up and work hard at it.”
Winston Churchill
As always, have a great evening and stay tuned!!
