US 2Q GDP revision could spark a dip in treasury yields

Commenting on today’s trading with a focus on the dip in treasury yields Gorilla Trades strategist Ken Berman said:

Inclusive Theory dip in treasury yields

mohamed_hassan / Pixabay

Today’s much-needed bounce in stocks, together with the improvements in the some of the key risk measures could mean that yesterday’s sell-off was just a ‘one-day-scare’. While the Nasdaq lost the most ground yesterday afternoon, the tech index led the recovery today, and despite an early spike in the Volatility Index (VIX), the risk-off shift almost completely reversed by the end of the session as safe-haven assets tumbled.

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Q2 hedge fund letters, conference, scoops etc

The major indices all bounced back today following yesterday’s late-day dip, amid the mixed trade-related developments, as investors tried to judge the consequences of the likely impeachment inquiry against the President. The Dow was up 163 or 0.6%, to 26,971, the Nasdaq gained 84, or 1.1%, to 8,077, while the S&P 500 rose by 18, or 0.6%, to 2,985. Advancing issues outnumbered decliners by an almost 3-to-1 ratio on the NYSE, where volume slightly below average.

Dip in treasury yields ahead?

While the tech sector was the clear leader of today’s rally, all of the key risk-on sectors shined. Consumer-related issues also got a huge boost from Nike’s (NKE) better-than-expected earnings report, which catapulted the stock to a new all-time high. Industrials were helped by the President’s upbeat comments concerning the trade talks with China, while financials were helped both by the bounce in Treasury yields and the improvement in investor sentiment.

Although the outcome of the impeachment inquiry is highly unpredictable, should the process reach at least the House, it would likely be a hot topic for several months, adding to the day-to-day volatility on Wall Street. With the Brexit saga entering another crucial phase ahead of the October 31 deadline and the next round of the trade talks with China also being scheduled for next month, politics might play a key role in the last quarter of 2019. That said, technicals and fundamentals will continue to form the long-term trends, so investors should continue to focus on those factors and ignore the 'noise' of the daily headlines.

ECB preview

European Central Bank (ECB) President Mario Draghi will give one his last speeches before the end of his tenure, and should he provide details regarding the Bank’s future policies, currency markets could see a spike in volatility. The dollar has once again made headlines today, as, in the wake of this week’s dismal European economic numbers, the currency closed at its highest level against the euro since mid-2017. The Great British pound also suffered a hit, due to the shaky situation of British Prime Minister Boris Johnson, and should those trends continue tomorrow, some of the export-focused U.S. companies could be under pressure.

As for domestic economic releases, the third reading of the second-quarter GDP print might steal the show. Analysts forecast no revision this time around, but anything below the initially reported 2% could spark a dip in Treasury yields, as revisions tend to provide valuable information regarding the momentum of the economy. Pending home sales and the weekly number of new jobless claims will also come out tomorrow morning, and in light of the positive surprises from the housing market over the past couple of weeks, bulls might be in for another treat. Stay tuned!



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Jacob Wolinsky
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