Today’s Big Picture
The risk-on trade continued yesterday, despite the World Health Organization’s warning early in the morning that we’ve just seen the biggest one-day jump in the numbers infected by the coronavirus. Investors continued the trend we’ve seen for the past 10+ years and bought the dip with a vengeance. Yesterday the S&P 500 and the Nasdaq Composite both hit new record highs, gaining 1.1% and 0.4% respectively. The Dow gained 1.7% to close within 0.25% of its all-time high.
The love was mostly directed at the previously snubbed shares with Energy stocks rising 3.8% and Financials 2%, compared to Technology shares which gained just 0.6%. It was a rotation day as overall value trumped growth. We’ve also seen the US Dollar break out of its recent downtrend and the 10-year Treasury yield rose back above 1.6%.
Despite the number of confirmed coronavirus cases in China rising past 28,000 with the death count exceeding 550, the global equity rally continued in Asia this morning. Those equities moved higher following the news China’s government will cut tariffs on $75 billion worth of imports from the US. with tariffs on some US goods cut from 10% to 5%, and from 5% to 2.5% on others, according to China’s Ministry of Finance. While we understand this is part and parcel of the phase one trade agreement between the US and China, we have to wonder if there is a subliminal message behind that date and the current phase two trade negotiations between China and the US.
In response to the latest US-China trade development, European equities have donned their rally caps today and are higher across the board. US equities also point to further gains when markets open later today. We’d note that even as the equity markets move higher, we are