Maybe They Do Ring Bells At The Top: Viral Plague Edition

A highly unfortunate series of events conspired to weigh on already fragile sentiment on the last day of January, pushing equities sharply lower.

Nerves were already frayed thanks to the ongoing deluge of coronavirus headlines. With the total number of confirmed cases pushing 10,000, we may be approaching a point beyond which the assumed deleterious effect on global growth isn’t the only concern. I’ll just leave that there for the virologists and scientists among you to debate.

When it comes to markets, 30-year US yields fell below 2% on Friday for the first time since October and the Dow erased its YTD gain.

Headed into 2020, market participants were pretty confident we’d be talking about 2% in January – only to the upside, on the 10-year, not to the downside, on the 30-year. Once again, dollar swaps spreads tightened into the rally, led by the long-end, as receiving flows magnified the move.

In addition to virus worries, lackluster data out of Europe and an astoundingly bad Chicago PMI print undercut risk sentiment materially, even as consumer sentiment data held up in the final read for January.

“We’re getting consistent information on the manufacturing side”, SocGen’s Subadra Rajappa remarked, calling it a “tug-of-war between the strong consumer [and] relatively robust jobs market”.

You might recall that Rajappa sees 10-year yields falling to 1.20% in 2020, in keeping with the bank’s house call for a relatively shallow US downturn.

Read more: Why Subadra Rajappa Sees US Treasury Yields Falling To 1.2%

An unconfirmed New York Daily News report suggesting that New York has its first coronavirus case (in Queens), prompted more Treasury buying. 10-year futures touched 131-21+ and yields fell as low as 1.517%.

As for stocks, after going 74 sessions without a decline of 1% or more, the S&P has done it twice in one week, although as we saw on Thursday, things can turn around into the cash close.

Our good friend Kevin Muir wonders if Bob Prince might have inadvertently proven that they do, in fact, ring bells at the top.

“Remember Ray Dalio top-ticking the last stock market rally a couple of years ago in Davos?”, Kevin asked on Friday. “Well, it looks like his partner did it this time”.

Nailed it.

Editor’s note: Although we couldn’t resist the humor, it’s important to note that there’s a lot to be said for Prince’s argument. Those interested can read more in The Crucial Nuance Behind Bridgewater Co-CIO Bob Prince’s ‘Boom-Bust Cycle Is Over’ Declaration