Blink and you missed it.
The coronavirus dip in the Nasdaq was wiped out on Tuesday, as tech shares pushed to new records on Wall Street, where stocks staged a furious rally despite little in the way of evidence to suggest the epidemic is abating in China, where the number of cases rose above 20,000.
Big-cap tech tied its best day since early June, when analysts were coming around to the reality that the Fed was likely to embark on a series of rate cuts in the face of what, at the time, were escalating trade tensions and a threat of across-the-board tariffs on Mexico.
“It is too soon to evaluate whether the S&P 500’s 3.7% drop from all-time highs represents the extent of the coronavirus risk off, or if there is greater downside to be realized”, BMO’s Ian Lyngen and Jon Hill wrote Tuesday. “The fact that the stimulus offered from the PBOC translated to gains in both European and US indices speaks to the central bank’s willingness to intervene and mitigate the extent of the virus-inspired selloff”, they went on to write.
“Whether right, wrong or indifferent, the extraordinary Chinese market- and liquidity- interventions streaming in real time are tilting the market view to ‘less bad’ outcomes”, Nomura’s Charlie McElligott told clients.
Apple and Amazon were sharply higher, but the real story is obviously Tesla.
We rarely mention the name, as it’s just not something that’s on the macro radar, but it’s unavoidable on Tuesday. Suffice to say it is over for shorts. Elon has, in fact, delivered on his long-standing promise to take a flamethrower to critics, although the shares did aggressively trim gains into the close to trade around $850.
“The Tesla 2025s are pretty much trading like a 5Y B-rated credit”, Bloomberg’s Luke Kawa noted.
In another testament to the risk-on euphoria, Tuesday was the best session for the EM equities ETF since Jerome Powell tipped the Fed’s dovish turn in a panel discussion with Janet Yellen and Ben Bernanke on January 4, 2019.
Treasurys and gold were waylaid, as risk appetite returned with a vengeance. 10-year yields rose as high as 1.616%, more than 10bps above the local lows.
The long bond ETF pulled back from overbought levels, on the way to its worst day since December 12, when the US and China were on the verge of announcing the details of the “Phase One” trade deal (those details would underwhelm just a day later).
Some are now calling for a near-term selloff in bonds, which kicked off 2020 with a surge reminiscent of the dog days of last summer, when yields plunged amid a recession scare tied to trade tensions.
For their part, JPMorgan is sticking with their forecast for 10-year yields above 2% by year-end. “There’s not enough data based on previous episodes, such as SARS or the bird flu, to factor into a forecast in a significant way”, Alex Roever, the bank’s head of US rates strategy told Bloomberg, in an interview.
“Recovering global assets and the associated selloff in Treasurys has certainly offered solace to those biased bearishly on bonds at the moment”, BMO’s Lyngen and Hill remarked, adding that although the curve “remains stubbornly, if understandably, flat at the moment… once the initial follow-through from the recent downtrade is behind us, we anticipate the curve will extend
the current bearish impulse”.
The bottom line is that as long as central banks are willing to backstop things with liquidity tsunamis, it’s going to take more than the mere threat of slower global growth due to the virus outbreak to undercut risk assets once and for all.
Indeed, the threats to global growth were arguably much greater in 2019, when the trade war very nearly went Defcon 1 in August. And yet, last year was one of the best years for equities in recent memory thanks in no small part to rate cuts and the promise of wide-open liquidity spigots.
Here’s some perspective on the recent “selloff”:
We’ll give the final word to America’s narcoleptic Commerce secretary, Wilbur Ross, who, during one of the most absurd interviews ever to air on CNBC, told Joe Kernen the following about Elon Musk’s orbiting roadster: “It was really quite an amazing thing. At the end of it, you have that little red Tesla hurdling off to an orbit around the sun and the moon”.