Welcome To ‘Blow-Off Top’ 2020

“Melt-ups” are so passé – it’s all about “blow-off tops” now.

Cite what you will. Maybe it was solid retail sales spiced with a better-than-expected Philly Fed. Or perhaps you’ll be inclined to point to the Senate clearing USMCA. Or homebuilder sentiment. Or you might suggest that if Wednesday was a “fade the news” day following the signing of the “Phase One” US-China deal, Thursday was a manifestation of lingering optimism around an interim resolution to the trade spat.

Whatever you want to attribute it to, US equities have now reached something that feels like escape velocity after another blockbuster session on Wall Street. With Thursday’s gains, the Nasdaq 100 is up 4.5% already in 2020. Barring a really bad Friday, big-cap tech will log a sixth consecutive weekly gain.

Alphabet vaulted into the elite club of trillion-dollar US corporates amid the surge. It joins Apple and Microsoft in the exclusive group of 13-digit market cap behemoths.

Of course, on a global scale, nothing compares to Aramco, which, even after recent stumbles, is still valued at $1.8 trillion.

Morgan Stanley had its best day in years Thursday following another good quarterly report replete with superlatives. The bank delivered positive commentary on the outlook as well.

One thing that continues to stick out is the inability of Treasurys to meaningfully sell off. That’s something we discussed early Thursday. Yields did end higher, but only by 1bp to 3bp across the curve, which bear steepened tentatively.

Note that small-caps are on track for their best week of relative performance since the early September factor quake, when yields snapped back from the August recession-scare lows, leading to a multi-standard-deviation unwind in various trades tethered to the “duration infatuation”. Now, though, the long bond ETF is actually higher for the week, even as the Russell outruns the S&P by the biggest margin in months.

Of course, other trades linked to low bond yields and a resurgence of “what’s worked” over the past several years are doing well in the new year. A popular Growth ETF has outperformed its Value counterpart for five weeks running, for example, and the Momentum factor is beating Value. This is entirely consistent with renewed flattening in the curve.

“Thematically, this Rates-based reversal has of course then helped drive the ‘back to the future’ moves in US Equities decile-, sector- and factor- behavior YTD”, Nomura’s Charlie McElligott said Thursday. That’s “powerfully flipping the December dynamics and driving a + Momentum / + Growth / – Value trade, as ‘Duration’ sensitives have rallied and ‘Cyclicals’ have struggled out of the gates”.

Of course, most “regular” investors aren’t going to care about the under-the-hood specifics as long as the benchmarks are rising. But, eventually, it would be nice if the long-end could sustain some manner of “gentle” selloff in order to “validate” economic optimism in the new year.