Today the Standard & Poor’s 500 stock index and the Dow Jones Industrial Average both hit record highs. The NASDAQ Composite was up 0.99% as of 2 p.m. New York time.
The iShares MSCI Emerging Markets ETF (EEM) advanced 0.95%. West Texas Intermediate crude was off 0.34% and international benchmark Brent crude dropped 0.93%.
For today–and the odds say through next week’s interest rate boost from the Federal Reserve and beyond–probably all the way to earnings season in early October–investors and traders are looking through the possibility of a trade war between the United States and China to good economic news (solid numbers on initial claims for unemployment,) the likelihood of another booming quarter for earnings reports, and, perhaps most important, a reversal in the strength of the U.S. dollar.
The Bloomberg Dollar Spot index continued its recent retreat today with a drop of 0.59%.
Bond yields continued to move up but only very, very modestly. The yield on the 10-year Treasury was up 1 basis point to 3.07% as of 2 p.m.
That’s a signal that the bond market isn’t afraid of a surge in inflation or of the near certainty of interest rate increases from the Federal Reserve at its September 26 and December 19 meetings.
A weaker dollar and steady bond yields are signals to traders that it’s relatively safe to go the other way on crowded trades that have bid up the dollar and depressed emerging markets. And that there isn’t anything visible in the near term to prevent traders who are long U.S. stocks from going even longer.
There’s nothing to say that the logic here is correct–in fact some of it strikes me as internally inconsistent. A rally in emerging markets and a weaker U.S. dollar would seem to siphon cash out of U.S. stocks. In the short-term, however, it’s the consensus of sentiment that drives trades and right now it looks like the market is sloshing from what it sees as overcrowded trades toward recently depressed assets such as emerging market stocks, and the yen and euro.
