As Good As It Gets?

Markets soared to new highs yesterday in a delayed reaction to the Good Friday release of March employment numbers.No one should have been surprised that US equity markets rallied. It was the first time that most investors were able to express their enthusiasm for a payrolls report that exceeded expectations by about 250,000 (350,000 if we include the upward revision). Remember that this rally came on the back of a sharp rise on Thursday, though much of the move came in the last 20 minutes of the day. This morning, stocks are meandering around yesterday’s highs, indicating that traders are consolidating yesterday’s gains ahead of the next move. It has to be higher, right?

If you’re a momentum trader, that would certainly seem to be the case. A couple of weeks ago we had a minor sell-off with tests of longer-term moving averages. The S&P 500 (SPX) tested its 50-day moving average trendline before bouncing, for example. Yet again, buy the dip proved to be trade that paid off. For investors of a fundamental nature, we have improving economic numbers, and today the International Monetary Fund (IMF) upgraded its estimates for global growth. In the meantime, fiscal stimulus is percolating throughout the reopening US economy while the Federal Reserve shows no willingness to remove its extraordinary monetary accommodation. It is hard to blame anyone who sees nothing but blue skies ahead.

As of now, it is not clear that the bond market fully embraces that view – which in its own peculiar way is a positive for equity markets. The mini-correction of late March was precipitated rising 10-year Treasury yields. We saw rates rise about 50 basis points in roughly 6 weeks, which is a huge move for a market that had been anticipating extraordinarily low rates throughout the next decade. That said, the bond market is still anticipating extraordinarily low rates throughout the next decade – just not as low as they were previously expecting.

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Disclosure: The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the ...

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