Clearly the volatility in the market – both up and down – has been driven by the daily trade war news items.  Last week, the anticipation and initial agreement on “1st phase” of a U.S./China trade deal caused a three day rally of nearly 4% in the S&P 500 (SPX) driven by the offensive areas of the market such as Materials, Energy, Industrials, Info Tech, and Financials.  Of course, there is confusion this morning emanating from China suggesting even more talks are needed to sign phase one of the deal, and as a result the SPX futures are trading a bit lower on the day.  We continue to urge investors to avoid getting whipped around on day-to-day trade headlines, instead focusing on the signals from the bond market.  The fact that both German and U.S. Treasury Bond yields rose last week in the face of weak economic data suggests a more sustainable rotation out of the defensive stocks has begun similar to what took place following the two mini-recession periods this cycle (2012 & 2016).


As our post mini-recession market and sector playbook highlighted – in both those occurrences the bond yield and offensive sectors began moving higher as the global central banks signaled increased accommodation on weaker economic data.  We know that seems counterintuitive but it is how it works.


Don’t forget today is a bank holiday and the bond market is closed, so volume should be low and volatility could be a little higher than usual – if you can imagine.


Past performance is not a guarantee of future results. Index returns are unmanaged and do not reflect the deduction of any fees or expenses.

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