Why new all-time highs again?

Thoughts of the Day

Major US stock indices, S&P500 and Dow Jones, surged to new all-time highs on a slow day, driven by slightly lower US bond yields due to reduced government borrowing requirements. In a bull market, even minimally positive news is enough for a rush to new highs.

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Day Ahead

The US JOLTS job openings data point is expected to show +8.75M jobs available in the economy in December vs 8.79M previously.


Earnings (all after market hours) : Alphabet (GOOGL), Microsoft (MSFT), Advanced Micro Devices (AMD)

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What Happened Yesterday

Market Movements as of New York Close 29 Jan 24
  • The US Treasury Yield curve inversion widened to 0.21% as the US 2-year bond yield fell  -0.05% to 4.29% while the 10-year yield edged higher by +0.01% to 4.15%. The US bond yields fell on the day nearing the end of the New York session as the US Treasury announced that it expects to borrow $760 billion in the first quarter, $55 billion less than market expectations.  (see headline 3 for more details). This drop in yields boosted risk sentiment and helped S&P500 and Dow Jones index power to new all-time highs.  
  • The US stock futures traded almost sideways through the Asian and London trading sessions with the S&P 500 futures up +0.20% when the New York session began.
  • The US stock market opened slightly higher from Friday. It then continued to trade within a range through the session until a brief spike occurred at the end of the New York session following the US Treasury announcement. Consequently, the S&P 500 popped +0.76% higher (high: +0.78%, low: -0.07%), the Dow Jones gained +0.59% (high: +0.62%, low: -0.13%) while the Nasdaq jumped +1.01% (high: +1.05%, low: -0.04%). 
  • The crypto market continues to recover with Bitcoin and Ether up +3.02% and +2.64% respectively.
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Headlines & Market Impact

Sen. Elizabeth Warren pushes Fed Chair Powell to cut ‘astronomical’ rates, ease housing pressure

Notable Snippet: Sen. Elizabeth Warren, D-Mass., and three other Democratic lawmakers are pushing Federal Reserve Chairman Jerome Powell to lower interest rates at the upcoming Fed meeting to make housing more affordable.

“As the Fed weighs its next steps in the new year, we urge you to consider the effects of your interest rate decisions on the housing market,” the senators wrote in a letter to Powell on Sunday.

“The direct effect of these astronomical rates has been a significant increase in the overall home purchasing cost to the average consumer,” the letter said.

“We have received the letter and plan to respond,” a Fed spokesperson told CNBC.

Expensive housing costs have contributed to lagging public sentiment on the economy, a top voting issue that has weighed on President Joe Biden’s 2024 reelection campaign.

That expensive housing market squashed demand as many homebuyers adopted a wait-and-see mentality in hopes that prices would come down. Seller activity was also in a lull given that there was little incentive to swap their lower mortgage contracts for the current higher rate.

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China removes state media article on plans to merge bad debt asset managers with sovereign wealth fund

Notable Snippet: China state media removed a story that initially reported that Beijing plans to merge its largest state-owned bad debt asset managers with China Investment Corp, one of the world’s largest sovereign funds.

The initial report was published Sunday by Xinhua Finance.

It cited unidentified sources as saying the plan to bring China Cinda Asset Management, China Orient Asset Management and China Great Wall Asset Management under CIC could happen “in the near future” as part of a plan to reform institutions.

This initial announcement, along with another by China’s securities regulator on Sunday that it’s suspending the lending of restricted shares starting Monday, underscores Beijing’s pledge last week to strengthen the “inherent stability” of its capital markets and improve market confidence.

Beijing’s actions follow a stock market rout amid burgeoning financial risks stemming from a debt crisis in its real estate sector. Last week, China’s central bank announced its largest cut in mandatory cash reserves for banks since 2021. It also announced a fresh policy mandate aimed at easing the cash crunch for Chinese developers.

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US Treasury to borrow $760 billion in Q1, lower than October forecast

Notable Snippet: The U.S. Treasury said on Monday it expects to borrow $760 billion in the first quarter, $55 billion lower than the October estimate primarily due to forecasts for increased net fiscal flows and higher cash balance.

The first-quarter financing estimate assumes a cash balance of $750 billion at the end of March, the Treasury said in a statement.

The Treasury also announced it expects to borrow $202 billion in the second quarter, as it projects a cash balance of $750 billion at the end of June.

It also said in the fourth quarter of 2023, the Treasury borrowed $776 billion in net marketable debt, in line with estimates released in October last year. It ended the fourth quarter with a cash balance of $769 billion.

The Treasury explained that the end-December cash balance was $19 billion higher than the October forecast due to other sources of financing such as the lower-than-estimated discount on marketable borrowing.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord