Equity Market Insights: January 9, 2018

Tuesday, January 9, 2018, 10:30 AM, EST

• NASDAQ Composite +0.01% Dow +0.27% S&P 500 +0.18% Russell 2000 +0.09% S&P MID 400 +0.05%
• NASDAQ Advancers: 1025 Decliners: 1146
• Today's Volume (100 day avg) +15%

US stocks are on pace for another day of gains and continuing the 2018 winning streak for the S&P 500, Nasdaq Composite and R2000. Crude Oil has shot higher (3 year high) partly on expectations for a US stockpile decline ahead of tomorrow's EIA weekly read, which would be the 8 th straight weekly decline. The US Dollar Index is up for the 2 nd straight day (hasn't happened since Dec 15 th ) after BOJ surprise bond purchase cut.

• Stat of the day from David Lutz at Jones Trading adds optimism for equities the rest of 2018. "The SPX is up 2.7% in the first 5 days of 2018. The Last 15 times that happened, the Spoos closed the year higher 100% of the time"
• Following the Bank of Japan's surprise cut of 10-25 year debt purchases by 10 billion yen, the first cut since 2016, the U.S. 10 year yield rose above 2.5% - the highest level in over 9 months.
• The next bubble (Part 2). Yesterday we noted that the Federal Reserve Bank of NY reported that US Credit card debt stood at $808 billion as of September 30 th - $280 billion more than at the height of the financial crisis - with analysts forecasting an increase to perhaps $1 trillion this year. Student debt blew past $1 trillion in 2012, and is approaching $1.5 trillion according to today's WSJ. This could get ugly one of these days.
• Speaking of a trillion, the FT noted that quantitative hedge funds are close to passing $1 trillion in assets under management as automated algorithmic trading grows, and powered further by strategies that use artificial intelligence. Traditional hedge funds also use quant strategies to varying degrees.
• The FT also noted that hedge funds have produced their best returns in four years. Hedge funds across all strategies produced returns of 8.5% in 2017, better than the 5.4% recorded in 2016, with equities funds up 13.2%. We note that lowering correlations in stocks since the election gives active managers a better chance to produce alpha.

Technical Take: Long Yield Emerging from 10-month Range

Treasury yields in the US are rising after the Bank of Japan announced it is reducing purchases of long-duration Japanese government bonds. As the Federal Reserve has been tightening monetary policy since December 2016 with four rate hikes, and more recently a gradual reduction to its balance sheet, global central banks have helped keep rates in check with their continued ultra-accommodative policies. Today's BoJ announcement is generating speculation the global banks are getting ready to follow the Fed's lead and embark on an era of tightening. That said the announced changes, reducing long bond purchases by 10B yen ($89M), appear relatively nominal and may be better characterized as an "adjustment' rather than a change in monetary policy. Nevertheless the US 10-year Treasury Yield is beginning to emerge from the 2.40% -2.48% resistance zone it has been in since March 2017. A breach of the psychologically important 2.50% level opens the path for a run towards the post-election highs at 2.64% and should lead to a widening of the yield curve (10yr-2yr spread).

Nasdaq's Market Intelligence Desk (MID) Team includes:

Michael Sokoll, CFA is a Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.

Jeffrey LaRocque is a Director on the Market Intelligence Desk (MID) at Nasdaq, covering U.S. equities with over 10 years of experience having learned market structure while working on institutional trading desks and as a stock surveillance analyst. Jeff's diverse professional knowledge includes IPOs, Technical Analysis and Options Trading.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Annie O'Callaghan is Director on the Market Intelligence Desk (MID) at Nasdaq. Annie has worked for NASDAQ in a variety of roles including support of Nasdaq C-level management in client retention and customer service. Annie also served as a Sales Director in Nasdaq's Transactions Services business. Prior to joining Nasdaq, Annie worked at AX Trading, managing accounts for its Alternative Trading System and served on Credit Suisse's trading desk as an Electronic & Algorithmic Sales Trading Analyst.

Brian Joyce, CMT is a Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq's Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.