Treasury Rates Hit New Multi-Year Lows In Pre-Market Trading

Commenting on today’s post and pre-market trading trading Gorilla Trades strategist Ken Berman said:

Pre-Market Trading

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The major indices all closed the surprisingly quiet day higher, as Friday’s brief panic subsided and volatility declined on Wall Street. The Dow was up 270 or 1.0%, to 25,899, the Nasdaq gained 102, or 13%, to 7,854, while the S&P 500 rose by 31, or 1.1%, to 2,878. Advancing issues outnumbered decliners by an almost 2-to-1 ratio on the NYSE, where volume was well below average.

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Reasons for today's market rally

Today’s rally was likely not based on the hope for a trade deal in the near future, rather on the relief that a scary new front of the trade war wasn’t opened.  The threat of a full-blown currency war was, a new front in the ongoing trade-skirmish was really behind Friday’s plunge, but today’s low-volume bounce shows that a lot of participants are still wary of a long spell of increased tariffs and tepid global trade. "

The major indices bounced back following Friday's tumultuous session, with the Nasdaq spearheading the advance. Even though the futures contracts of the benchmarks hit new three-week lows in pre-market trading, stocks opened higher thanks to the positive trade developments and the indices finished the session near their intraday highs. The Volatility Index (VIX) fell back below the psychologically important 20 level, but it remains close to the danger zone, and we would likely need confirmation that the trade talks are back on track to see a meaningful decline in volatility. 

Treasuries collapse in pre-market trading

While today, investors enjoyed a broad rally in stocks the divergences between the key sectors remain strong, and cyclical issues continue to lag behind the large-cap benchmarks. This likely means that although investors are less fearful of an all-out trade war, the risk of a global recession is still affecting capital flows. Although the Treasury yields declined today, rates hit new multi-year lows across the yield-curve in pre-market trading, and they are still just a hair below Friday’s closing levels. Investors continue to prefer the safety of Treasuries and gold, but should the economic picture improve, and safe-haven flows reverse, stocks could be in for an explosive rally.

Today’s chaotic trade-related news flow supports the suspicion that although both sides are willing to take risks to reach a better bargaining position, Friday’s steep sell-off scared the leaders of both the U.S. and China. The quick and decisive market reaction and the continued weakness in economic numbers could force the sides to, at least, continue the negotiations. The coming weeks will show how badly last week's escalation really hurt the process, and how investors view the outlook for global growth.

Tomorrow's busy schedule

We will have a busy day of economic releases tomorrow, with key reports coming out concerning the housing market, the consumer economy, and manufacturing alike. The CB consumer confidence number might have the biggest impact on stocks, and after last month’s unexpected surge in the measure, analysts expect a dip to 130 from the near-record 135.7 level. The Case-Shiller Housing Price Index is expected to rise to 2.5% on a yearly basis, which would mark the first increase of the year, and could confirm the positive surprises of the recent weeks from the housing market.  The Richmond Manufacturing Index will also be out after the opening bell and in light of today’s mixed durable goods report, a bullish reading could stabilize stocks in the struggling industrial sector. Stay tuned!



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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver