Risk/Reward Vol. 406
Positive corporate reports, encouraging news on the China negotiation front, continued expressions of rate-hike timidity by the Fed and a healthy labor market caused the indices to register their fourth consecutive week of gains. Year to date the major indices are up on average over 6% although they lag where they were a year ago by a similar percentage. This performance comes despite a continued government shut-down which the Fed has warned may negatively impact overall growth this year by as much as a half of a percent. Look for a spike if and when the standoff ends.
On the fixed income front, rates on the 10 Year continue to languish below 2.8% while bonds of durations 6 months and less continue to hold steady between 2.4 and 2.5%. This is hardly surprising considering that the Fed funds overnight rate (the shortest and ostensibly the lowest available) is between 2.25 and 2.5%. Unfortunately, I don't foresee any event that is going to cause the rates of longer duration bonds to increase. Typically, one would expect the recent stock market rally to cause rates to rise, but that has not happened this time. And for reasons discussed in the next paragraph I don't foresee the bond market becoming less attractive and thus providing a better yield. (Remember as bond prices fall, bond yields--rates--increase.)
The rattling of sabers aimed at The Donald's head continues unabated. The bombshell this week was a report issued by BuzzFeed (a Washington insider tattle sheet) that the President's former attorney, Michael Cohen (he of Stormy Daniels fame), told the Special Prosecutor that Trump instructed him to lie to Congress as to when negotiations for a Moscow Trump Tower ceased. This expose caused such a furor the Special Prosecutor's office issued a statement specifically refuting the BuzzFeed report. Nevertheless, look for Congress (specifically the Democrat controlled House) to chase this and every other allegation of Trump wrongdoing. Let's hope that Mr. Market can rise above this partisan bickering. I fear he cannot.
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