New Highs

Markets slept on yesterday’s Fed-fest and decided they liked it. The S&P 500 has its sight set on record highs, while the Nasdaq isn’t far behind. The 10-year yield dipped below 2% overnight and is still slightly below that psychological level as of now, and the yield curve (10y vs 3m) is still firmly inverted at negative 14 bps.

There’s a decent chunk of economic data to contend with this morning as initial (220K) and continuing (1,680K) jobless claims will be released at 8:30 along with the Philly Fed (+10.7). Then at 10:00, we’ll get Leading Indicators for May (+0.1). While jobless claims are always closely watched, the Philly Fed will also be under the microscope as investors look for insight as to whether the Empire Manufacturing report earlier this week was a one-off or the beginning of a trend.

As mentioned in a post yesterday afternoon, while US markets crave dovish Fed commentary, emerging markets love it even more. The main reason? It weakens the dollar. Another group of stocks that like a weaker dollar as much as emerging markets is US multi-nationals. The top chart below shows the performance of our S&P 500 Domestics and Internationals indices over the last 12-months. While the Domestics are already at record highs, it has been the Internationals that have outperformed in the most recent leg higher. Since the low on June 3rd, the Internationals have rallied 8.6% compared to a gain of just 4.5% for the Domestics.

In the lower chart, we compare the performance spread between the Domestics and Internationals to the Bloomberg US Dollar Index. The two have tracked each other relatively closely over time, although the addition of tariffs to the mix shook the relationship up a bit earlier this year. With the dollar under pressure again this morning and on pace for its worst day since January, you can expect to see Internationals continue to lead, and then any additional positive news on trade will only add fuel to the fire.

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