Positivity.  Stocks posted slim gains yesterday as investors piled into recovery stocks.  A measure of job vacancies indicated a drop in openings, led by the food services category, which was disappointing but hardly surprising.




Bonding session.  Stocks are fun to talk about.  Just about everybody these days has some story about a popular stock.  If I had a nickel for every person that has mentioned Tesla to me… well you know how that goes… I would probably be writing this note from a beach… on a private island, which for the record, I am not. These days just about everything we touch in our consumer lives is somehow connected to the stock market.  Even things that we didn’t know existed have come to the stock market in the past year making a big splash… and some very wealthy entrepreneurs.  So, whether your first cup of Joe is a Keurig (Keurig Dr. Pepper: KDP), Nespresso (Nestle: NSRGY), or Starbucks (SBUX) you have already come into contact with the stock market.  Shop online at Amazon (AMZN) or Etsy (ETSY) for something you saw on Instagram (FB)… yep.  Or maybe you prefer to shop, socially distanced of course, in person at Lowes (LOW), Walmart (WMT), Target (TGT), or Kroger (KR)… yes. How about settling in to your home office to get on a Zoom video call (ZOOM) on your MacBook (AAPL) or your Dell Laptop (DELL and MSFT)… I won’t even get into Peloton (PTON)… out of guilt.  The utilities that supply your energy, your water, your internet access… affirmative. Digital entertainment… that would be a long list, but you know the usual suspects there.  Ok, I can go on and on with this, but the fact remains that the stock market touches our real lives in so many ways and more people are beginning to realize that.  So, yeah, the colorful stock market is an easy topic to discuss.  The same can’t be said about its more monochromatic cousin: the bond market.  I can assure you that I can’t remember the last time someone wanted to have a discussion about the Treasury’s 7/8 of 11/15/30.  For the record that is the on the run 10 year note, AKA 10-year treasury that I report on everyday… every day mind you. “On the run” simply means that it is the most recently issued 10-year maturity note.  It has a coupon of 0 7/8, that 0.875%, paid twice a year until November 15th, 2030, at which time you will also get your $1000 per bond principal back.  If you bought it today, you would pay something around 97-21+.  Huh?  That means 97 and 21/32+, or 43/64. Not exactly an exciting topic of discussion to have over a cup of tea (Hain Celestial Group: HAIN) or a cocktail (Anheuser-Busch InBev: BUD or Constellation Brands: STZ).  Corona Beer in hand, you might try to impress your mates by telling them about the manufacturer’s 3.15 of 8/01/29 bond offering.  You might discuss its BBB rating (which is one step above junk), whether or not you expect it to be called back at par, or even if you think that the +75.7 basis points yield spread to the 10-year treasury mentioned above is a sufficient risk premium. That should make for a pretty un-lively discussion.  Even though it is not fun to talk about, the bond market is extremely important and can have a huge impact on those things that everyone DOES love to talk about.  You have heard me talking about yields rising recently, or you may have caught me talking about the slope of the yield curve steepening.  These things are happening.  The vast majority of bonds are held by institutional investors like insurance companies, government central banks, and pension funds.  Individual retail investors typically own bonds through ETF’s and Mutual Funds. That means investment decisions are made by professionals and are usually well-informed.  They are influenced by numbers, statistics, and finance.  Bonds are less moved by emotions and news events but rather on economic forecasts.  When bond traders expect economic conditions to improve and inflation to grow, they sell bonds pushing yields higher. The Fed controls shorter term yields through policy leaving longer term maturity yields to the market… mostly (more on that in a few sentences).  When bond traders sell longer term bonds pushing rates higher while the Fed keeps rates near zero, the yield curve steepens, which it has been.  The 2/10 yield curve is now at levels not seen since 2017.  That is good news for banks which make better margins with a steep yield curve.  Want to know generally how well banks are doing?  Just look at interest rates and the shape of the yield curve. Of course there are many other factors, but yields are a big one. Yesterday, I wrote about how higher yields can have a negative impact on, specifically, those growth stocks that everyone loves to talk about.  In addition to keeping statutory rates low, the Federal Reserve has been buying lots of bonds to keep the market liquid.  The result has been supportive to lower, longer maturity yields.  At some point, the Fed will taper their purchases, though they have not said when just yet.  When the Fed does decide to taper its purchases, bond yields will likely rise further. Higher yields will be nice for the financial sector, but not so much for utilities… or growth stocks.  So, if you want to talk about Tesla (TSLA), Plug Power (PLUG), Crowdstrike (CRWD), or Twitter (TWTR), I get it, but don’t forget to ask me about my thoughts on the bond market.




Stocks traded up yesterday in a recovery trade.  Economically sensitive and cyclical stocks were the winners while technology stocks lagged.  The S&P500 rose by +0.04%, the Dow Jones Industrial Average climbed by +0.19%, the Russell 2000 Index jumped by +1.77%, and the Nasdaq Composite Index added +0.28%.  Bonds slipped and 10-year treasury yields… yes, the ones I mentioned above… slipped by -2 basis points to 1.12%.




– Consumer Price Index Ex Food and Energy (Dec) may have ticked up by +0.1% after growing by +0.2% in the prior month.

– The Fed Beige Book will be released this afternoon.

– Today’s Fed speakers include Bullard, Kashkari, Brainard, Harker, and Clarida.  Remember, they control rates and bond purchases… as mentioned above.


daily chartbook 2021-01-13


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