Wednesday, September 16, 2020

Morning Note: More on the Disconnect

Asian equities had a mixed session overnight, with 7 of the 16 markets we track closing lower. Same for Europe this morning, 9 of the 19 bourses we follow currently in the red. And "mixed" pretty much characterizes U.S. stocks to start today's session: Dow up 91 points (0.32%), S&P 500 up 0.11%, Nasdaq down -0.19%, Russell 2000 up 0.75%.

The VIX (SP500 implied volatility) is up 3.28%, VXN (Nasdaq vol) is up 3.23%.

Oil futures are up 3.11%, gold's up 0.39%, silver's up 0.40%, copper futures are down 0.24% and the ag complex is up 0.11%.

The 10-year treasury is up this morning (yield down) and the dollar is off a titch, -0.07%.

Our core portfolio, led this morning by energy, financials, banks, industrials and materials, is up 0.26%. Emerging market equities, Eurozone equities, and U.S. tech are our only positions in the red at this point.

Keeping it brief on this Fed-decision day I'll leave you with another telling (speaks to the present disconnect between markets and economic reality) tidbit from the latest Bank for International Settlements Quarterly Review:

"Similarly to aggregate stock market patterns, credit spreads looked remarkably tight when contrasted with subdued expectations for the real economy. Lower global activity means lower revenues and cash flows for firms to service their debts. Yet credit spreads in recent months have compressed to the low end of the historical distribution once the weak expected economic performance is taken into account. This has taken place despite a persistent deterioration in issuers’ credit quality: the share of firms on negative watch has not declined following the large spike in actual downgrades during Q2."

Next up "This Week's Message."

Have a great day!

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