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Stuff those stockings

By Dwight Johnston on December 6, 2017 at 9:29 am

Securing a merry Christmas

Stocks look set to continue to struggle today as Dow futures are down 45 points in pre-opening trading. Bond prices are higher.

The Dow will likely open down almost 500 points from the Monday morning high trade. We were so young and happy back then as we looked forward to that juicy tax cut. What happened? Traders and investors have decided to make certain they have a Merry Christmas by locking in profits. But U.S. traders aren’t the only stuffers of stockings. It’s a global thing. While the U.S. stock market has struggled this week, global markets have gone straight down.

Global profit-taking

The Japanese market is down 2% just today and European indexes are down about 1%, and this comes after string of big down days over the past few weeks. While our stock market has been up strongly this year, the performance pales in comparison with the global run. Both the Japanese and European stock markets were up close to 30% before the selloffs began.

This is not a fear trade as momentum in the global economy is building, not fading. This is profit-taking, pure and simple, on a global basis. So where is that money going? Into bonds of course.

Bond market snapshot

The move in bonds here has not been dramatic by any stretch of the imagination, but the fact yields are falling at all, given the outlook for the economy and tax reform, does not suggest falling yields. But the money must go somewhere, especially for balanced fund managers.

The German bond market is really leading the way. The buyers there are facing the problem that the European Central Bank has bought so much there is nothing left for investors. At least we don’t have that problem. I wish had a time travel machine to see what happens a year for two from now when the world’s central banks are out of the bond buying business and the U.S. Treasury is cranking out debt to cover the ever-expanding deficit. Where is Scrooge’s Ghost of Christmas Future when you need him?

Economic report releases

The ADP private payroll estimate is out, and ADP says that 190k private jobs were created in November. This was in line with expectations for ADP and also in line with expectations for Friday’s Nonfarm Payroll report.   

Opening market reads

  • The 2-year is 1.80%
  • The 5-year is 2.12%
  • The 10-year is up 6/32s to yield 2.33%
  • The 30-year bond is up 11/32s to yield 2.715%
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