Equities Take A Pause At Record Highs

Market highlights 

  • US equities moved sideways again, firmly planted in wait-and-see mode ahead of earnings season
  • After another whippy session for oil, traders are trying to hash out a near-term sweet spot
  • EUR remains steady on good data; GBP gingerly bounced back from overnight weakness; Major corporate deal has potential weigh on the USDJPY
  • Gold struggles to push back above the 1740 mark


US equities moved sideways again on Wednesday, firmly planted in wait-and-see mode ahead of earnings seasonThe S&P was up 0.1% and the only thing notable about that was that it was enough to set a fresh record high. US10Y yields were up 2bps to 1.67%. Oil up was 0.7%.

In an echo of yesterday's Asia Market note, it's not unusual for the market to pause at record highs, even more so as the S&P moves towards its upper reaches, hinting investors could be exhausted from chasing strength. 

But more poignantly, they likely need a little more confirmation at precisely what stage of the recovery we’re at, and more specifically for bond yield concerns, exactly where inflation sits as the technical correction lower in US 10y bond yields. Given that more prominent sectors (i.e. tech) continue to struggle in the face of higher US bond yields, the most significant risk is that inflation readings forces the Fed to modify their normalization plans.

Still, the recent shift lower in US bond yields indicates a market positioned for higher bond yields, where price action is likely to be of the "two steps up, one step back" variety. And, according to the latest trend, the S&P 500 should be expected to move in tandem, making headway when treasuries ease back and then consolidating or seeing small profit-taking as yields step up.

But it‘s been a hugely impressive run in US equities given the high US yields and the negative buzz around corporate tax hikes – especially when the quarter-end pension rebalancing kept a good chunk of investors on the sidelines. However, the Q1 earnings season is probably limiting appetite to add risk as the markets need corroborative evidence to justify lofty valuations.

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