In an interview with CNBC today, President Trump’s top economic advisor Larry Kudlow highlighted the Administration’s growing frustration with China’s seeming lack of interest to reach any deal in the ongoing trade dispute.  As the US and China continue to drift apart in terms of reaching a potential trade deal, so too have the stock markets of both countries.  Below we highlight the YTD return of the S&P 500 versus China’s benchmark Shanghai Composite Index.  While the two indices started off the year tracking each other relatively closely, the gap between the two has steadily widened and even picked up the pace ever since the President announced the first round of tariffs against China in early March.  Through Wednesday, the YTD gap between the two indices is over 20 percentage points in favor of the US, and that’s before even taking the decline in the value of the yuan into account.

With the President’s intent focus on the performance of the stock market under his tenure, you can bet that as long as this trend continues, there will be no urgency on the part of the US to make much in the way of concessions, especially after relaxing restrictions on the ZTE ban and seemingly getting nothing in return.

The chart below is updated on a daily basis in our Morning Lineup report and shows the relative strength of the S&P 500 versus the price of the Treasury Long Bond Future over the last 12 months.  In the chart, a rising line indicates that equities are outperforming long-term Treasuries and vice versa.  As you can see in the chart, the final four months of 2017 saw a steady trend of equity outperformance right up until the January highs. You may recall that back in late January, sentiment towards equities was at multi-year highs while the overriding consensus was that Treasury yields were going to the moon, which would put bonds in a swoon.

Well, with the benefit of hindsight, we all know that stocks didn’t keep rallying and long-term Treasury yields fell (meaning bonds are up in price).  In the last couple of weeks, though, equity performance has picked up steam and while the S&P 500 just cleared frustrating resistance at the 2,800 level in the last few days, equity relative strength is also making a move to test a resistance level that has been problematic over the last few months. Technicians often say that the more often a support or resistance level is tested, the weaker it becomes.  That ultimately proved to be the case with 2,800 for the S&P 500 last week, and given all the tests in the relative strength chart below, we think resistance will eventually give way to a breakout here as well.

OK, everyone knows that the big mega-cap stocks have been doing most of the heavy lifting with respect to stock market returns of late, but one thing we continue to stress is that just because the big stocks are doing really well doesn’t mean that the rest of the market is in the tank.  The most recent example?  Just today, the Nasdaq 100 Equal Weight index is poised to close at an all-time high after rallying more than 1% off its early lows.  While the index still hasn’t taken out its intraday all-time high, it’s basically right there.

Again, we aren’t denying the fact that the cap-weighted Nasdaq 100, which has been driven by the FANG and other large-cap tech stocks has been outperforming.  In the six-month window that the Nasdaq 100 Equal Weight index has been range-bound, the cap-weighted index has been making a routine out of hitting new highs.

Comparing the performance of the two indices, the Nasdaq 100 is up just over 30% over the last year, but the Nasdaq 100 Equal Weight has been no slouch either, rallying almost 19%, which is better than the Dow, S&P 500, or even Russell 2000.