Rally Rolls On
After trailing off a little bit earlier, US equity futures are drifting back towards their highs of the morning. These gains come despite the fact that the World Bank lowered its 2019 global growth forecasts and Apple is reportedly cutting iPhone production by another 10%. Rallies on bad news are certainly a change in tone from what we became accustomed to in the fourth quarter of 2018.
In a B.I.G. Tips report yesterday, we highlighted the recent compression in high yield spreads and how it had reached extreme levels. Following up on that report, we wanted to note that high yield spreads continued to tighten in yesterday’s trading and have now come in by 79 basis points in the last three trading days. The chart below shows the historical three-day change in high yield spreads based on the Merrill Lynch High Yield Master Index. Since 1997, these types of moves haven’t been particularly common.
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