Market Update: Tuesday, March 28, 2017


  • Stocks seek catalyst to climb. (10:11am ET) Domestic markets are modestly higher this morning as market participants search for reasons to push stocks higher; policy focus is turning to tax reform amid a light week of economic data. Yesterday, the major indexes rose off of their lows throughout the day after a shaky start, although the Dow (-0.2%) extended its losing streak, and the S&P 500 (-0.1%) slipped as losses in telecom (-0.7%) and real estate (-0.6%) outweighed gains in healthcare (+0.4%) and materials (+0.3%). Overseas, the Nikkei (+1.1%) recouped most of Monday’s loss, while the Hang Seng (+0.6%) advanced and the Shanghai Composite (-0.4%) dropped; European equities are narrowly mixed in afternoon trading after Monday’s declines. Meanwhile, the dollar continues to trade near a four-month low, WTI crude oil ($48.19/barrel) is up 1%, COMEX gold ($1257/oz.) is near flat after yesterday’s 0.6% gain, and the yield on the 10-year Treasury is down a basis point (0.01%) to 2.37%.


  • Flight to quality drives Treasuries higher. Treasury prices moved higher all last week as market volatility led investors to the safety of risk-off assets such as Treasuries. The yield on the 10-year Treasury finished the week lower by 0.10% to 2.40%. Heading into yesterday’s session, 10-year yields were lower by another 0.03% as volatility in equity markets continued. In this week’s Bond Market Perspectives we discuss municipal bonds, which are looking more attractive relative to other high-quality bond sectors and may present an opportunity for investors looking for diversification within high-quality fixed income.
  • International bonds follow U.S. Treasuries. Higher-quality bond prices in Germany rose last week, with the 10-year Bund finishing lower in yield from 0.43% to 0.40%. This puts the U.S. Treasury 10-year yield advantage to the German Bund 10-year at 2.00%.
  • Treasury yield curve flattens. The 2-year Treasury moved lower in yield last week, but less dramatically than the 10-year, leading to a flatter yield curve. This brings the 2-year to 10-year slope, a measure of the steepness of the yield curve to 1.14% as of last Friday, flatter by 0.03% on the week.
  • U.S. Treasury futures decline slightly. The latest Commitments of Traders report, released by the CFTC (data through March 21, 2017) shows that the net-short position in the 10-year Treasury declined, as traders covered short bets as the equity market sold off last Tuesday and bonds rallied. This is still elevated, but it is the smallest short position for the 10-year since December 2016 as traders reduced their bearish positions. Exposure by large speculators reached the eighth straight week of increased shorts in 3-month Eurodollar futures, a signal that rate hikes are expected.
  • High-yield corporate spread widens. The spread of high-yield corporate bond yields over comparable Treasuries widened from 3.8% to 4.0% on the week. Much of this move can be attributed to increased volatility in risk-on assets amid the decline in equities last Tuesday. This, coupled with stellar performance last year of 17.1% (Bloomberg Barclays High Yield Index), led many investors to take profits, shedding risk and increasing credit quality.
  • Dow down again. The Dow fell for the eighth day in a row Monday (the S&P 500 has been down seven of eight days), but the Nasdaq and small caps managed to close slightly green. The Dow was last down eight in a row the summer of 2011, but it hasn’t been down nine days in a row since early 1978. Since 1900, it has now had 29 eight-day losing streaks. What is unique about this time? It is the closest ever to new highs (only off 2.7%) and down the second-least ever during the streak (-1.9%).
  • Big reversal in small caps. The Russell 2000 (RUT) was down 1.45% at its lows yesterday morning, but managed to close slightly green. You have to go back to late February 2016 for the last time it had a reversal like that. In fact, the previous 25 times the RUT was down as much as it was yesterday, it closed red. In other words, the reversal yesterday was quite significant.


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Important Disclosures

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

Stock investing involves risk including loss of principal.

Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better.

Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk.

Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments.

Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards.

High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors.

Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply.

Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained.

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