That was much to do about nothing now wasn’t it. Well, the major averages did finish lower, which is a bit of a new occurrence in the New Year. And after a bump in volatility at the opening of the trading day, the VIX managed to finish below 10 once again in 2018. The S&P 500 index lost 3.06 points, or 0.1%, to 2,748.23, after scoring its highest number of records in a new year since 1964. The Nasdaq Composite Index fell10.01 points, or 0.1%, to 7,153.57 and the Dow Jones Industrial Average lost 16.67 points to 25,369.13. Much of the morning “buzz” surrounded the 10-year yield breaching 2.50% and touching 2.59 percent. Much of the fear mongering surrounding bond yields did indeed come from fund managers and a Bloomberg News report that China is considering halting or cutting its purchases of U.S. government paper. But even with most European equity markets finishing lower on the day and the 10-year above 2.50%, U.S. equities turned a Dow 130+ point loss into a mere 16 point loss. So there…!
One day does not make it a trend anymore than creeping treasury yields make for panic in the markets. Investors are best aligned with the premise that it’s not a matter of bond yields rising, but how quickly they rise. But if bond yields didn’t make for a long day, the specter of the U.S. pulling out of NAFTA added another layer of worry for equity investors.
“If the U.S. pulls out of Nafta, I do think that represents a definite risk to markets,” said Liz Ann Sonders, chief investment strategist at Charles Schwab.
Sonders distinguished between Trump wanting to withdraw and the U.S. actually doing it, noting that such a fundamental shift in policy would likely need congressional approval, which could be difficult to obtain given how controversial such an initiative would likely be. “There could be an announcement that we’re pulling out, and then there’s what actually has to happen for it to occur. Either way there will be shock waves” in the market, she said.
I don’t know how many notions, headwinds, scenarios or circumstances it takes to halt this bull market, but it certainly seems like the longer in the tooth the bull market gets, the more it is hunted for with hatred of the bull market. For now and until something more egregious finds markets in turmoil the course is straight and narrow.
Tomorrow begins a 2-day cycle of more relevant economic data. The Producer Price Index will be reported tomorrow at 8:30 a.m. EST followed by Friday’s release of Consumer Price Index and December Retail Sales. Also Friday, we’ll get into the Q4 2017 Earnings reporting with Wells Fargo, J. P. Morgan Chase, PNC Financial and Blackrock all reporting quarterly results. And if you don’t think investors are already out in front of the financials reporting cycle, take a look a chart of the 30-day Financials Select Sector SPDR ETF below: