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“Government is like a baby: an alimentary canal with a big appetite at one end and no sense of responsibility at the other.” – Ronald Reagan
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Across the S&P 500, Nasdaq, and Dow this morning, futures are pointing to modest losses with all three indices trading down 0.12% as of this writing. True to form, though, the Russell 2000 is down more than triple that at 0.37%. Outside of the US, European stocks are modestly higher, and Chinese stocks surged on hopes for more government support. The economic calendar in the US is light today as it will be for most of the week.
Today would have marked the 113th birthday of former president Ronald Reagan, and besides being the leader of the free world for eight years, Reagan’s acting career was highlighted by his role in Knute Rockne – All American, where he played George Gipp. Knute Rockne was the coach of football at Notre Dame and was famous for his ”Win One for the Gipper Speech” which he gave at halftime in a game against Army at Yankee Stadium in 1928. The team was having a terrible season and living up to their Fighting Irish nickname they were not. Inspired by the pep talk, Notre Dame came out and scored two second-half touchdowns to stun Army by a score of 12-6. If there’s any part of the market that could use a Rockne boost right about now, it’s small caps.
Well maybe not just small caps. Just when you thought it was safe to get back in the 60/40 pool, long-term US treasuries have found themselves getting bombarded in 2024. Year to date, the iShares 20+ Year US Treasury ETF (TLT) is already down over 4%. Long-term treasuries sold off throughout just about all of January, and while they rallied in the last days of January and to kick off February to get back to even, the two trading days since last Friday’s employment report have been painful. TLT has experienced back-to-back declines of over 2%, taking it back below both its 50 and 200-day moving averages and perilously close to breaking the loose uptrend that emerged from the October lows.
Consecutive declines of over 2% hurt no matter what the asset class, but the sting of two declines of that magnitude for treasuries hits hard. Since TLT started trading in late 2002, there have only been two other periods where the ETF experienced back-to-back 2% declines, and they occurred at the two most volatile periods of trading in the last two decades – late in the Financial Crisis (January 2009) and within days of the Covid lows. As everyone remembers, those two prior periods both ended up being massive buying opportunities for the equity market, but they also occurred after very large declines in stocks. Right now, the S&P 500 is within half of one percent of an all-time high. Extreme volatility in the treasury market with the VIX under 14? You don’t see that often, but then again, there’s a lot that has happened in the last four years that wouldn’t get filed in the normal folder.
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