April 5, 2018

Stocks opened sharply higher this morning, building on yesterday’s gains. The Dow is currently up 330 pts and the SPX is up 1%. The energy sector, up 2.1%, is leading way along with materials (+1.7%) and consumer discretionary (+1.3%). The VIX Index, which gauges investor fear, is down around 19. Foreign stock markets are also recovering; most of Europe is up over 2%. We’re seeing a bounce in commodities as well today (WTI crude at $63.70/barrel; copper +1.7%). The dollar is a bit stronger today but still down 1.7% on the year. Bonds are selling off today, sending yields higher. The 5-year Treasury note yield is up around 2.64% and the 10-year yield is hovering around 2.83%. 

Famed bond fund manager Jeffrey Gundlach says interest rates are probably range-bound in the near-term. He sees the 10-year Treasury trading between 2.95% and 2.73%. He also notes a key relationship in that the 10-year yield seems to be tracking with the average of US nominal GDP growth (at about 4.5%) and the German 10-year yield (at .52%). Traditionally, economists have held that the 10-year should track nominal GDP growth. But of course, the current interest rate environment, suppressed by central banks around the world, has dislocated traditional bond market gauges.    

JP Morgan (JPM) CEO Jamie Dimon backed President Trump’s position on unfair trade with China in his annual letter to investors. He urged investors to acknowledge that the US has legitimate complaints because trade is not equitable. “Tariffs and non-tariff barriers to trade are often not fair; intellectual property is frequently stolen; and the rights to invest in and own companies in some countries, in many cases, are not equal.” Not surprisingly, however, Mr. Dimon advocates for a more diplomatic approach to addressing the issue with the Chinese. 

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