Treasury yields are going down and stock prices are going up. That is a snapshot of this week's action so far -- and this year's action for that matter.
Today, the yield on the 10-yr note sits at 1.96%, down three basis points from yesterday and the lowest since 2016. That move has been catalyzed by general growth concerns, yet it is also an offshoot of an interest rate differential trade as sovereign yields elsewhere for developed countries are much lower and even negative in several instances.
10-yr securities in Germany (-0.39%), Japan (-0.16%), and France (-0.09%) are all negative. There is no yield there to be found. Buying those securities is tantamount to paying those governments to take your money, which makes a lowly 1.96% yield on a U.S. 10-yr look comparatively strong in the world of fixed-income investors.
In the world of equity investors, a 1.96% 10-yr yield makes equities look comparatively more attractive than bonds.
Those low rates are driving multiple expansion and keeping the stock market propped up at a record high at a time when earnings growth is elusive and economic growth is fading.
In brief, the persistence of low rates is being viewed as the bridge to a better future that involves better earnings growth and better economic growth. Accordingly, there is a tendency in the here and now to dismiss disappointing data.
It's happening again this morning.
The ADP Employment Change Report for June showed a weaker-than-expected 102,000 positions were added to private sector payrolls (Briefing.com consensus 145,000). Meanwhile, the U.S. trade deficit widened to $55.5 billion in May (Briefing.com consensus -$54.4B) from a downwardly revised $51.2 billion (from -$50.8 billion) in April.
The key takeaway from the Trade Balance Report is that the average real trade deficit in the second quarter is 2.3% greater than the first quarter average, which is a negative for the Q2 GDP growth outlook.
Separately, initial claims for the week ending June 29 decreased by 8,000 to 221,000 (Briefing.com consensus 222,000). Continuing claims for the week ending June 22 also decreased by 8,000 to 1.686 million.
The claims data will be glossed over knowing that the June Employment Situation Report will be released on Friday and also knowing that the initial claims figure was roughly in-line with expectations.
That wasn't the case for Tesla's (TSLA) second quarter delivery numbers. They were stronger than expected 95,200, which was also a record for the company. That news and some encouraging commentary on order backlog has triggered a 6.7% advance in shares of TSLA in pre-market action.
In other news, President Trump has nominated Christopher Waller and Judy Shelton to the Fed Board of Governors. Gold futures ($1421.10, +$13.10, +1.0%) have risen in part on that news, as the president's nominees are expected to carry a dovish-minded perspective on policy rates.
The stock market for its part continues to maintain a bullish-minded perspective over the Fed's dovish-minded shift on the path of policy rates, which is contributing to low market rates.
The S&P futures are up six points and are trading 0.3% above fair value. The Nasdaq 100 futures are up 15 points and are trading 0.4% above fair value. The Dow Jones Industrial Average futures are up 53 points and are trading 0.3% above fair value.
As a reminder, the stock market will close at 1:00 p.m. ET today to get a jump on the Fourth of July holiday. The Treasury market will remain open until 2:00 p.m. ET.
Enjoy the holiday!