Out On A Limb.

Once again, US equities managed to recoup losses tied to virus jitters.

Amid a lingering sense of angst to start the new week, Wall Street got off on the right foot, despite no concrete news to suggest the epidemic is abating, and in spite of unnerving political headlines out of Germany.

The Nasdaq managed to gain more than 1%. The bubble watchers among you will be interested to note that the Nasdaq 100 is (basically) at a new relative record versus the composite.

And, just to reiterate a point from last week, big-cap tech is overbought again, as salivating dip-buyers jumped at the opportunity to snap up the world’s best companies on the “cheap” (and the scare quotes are there for a reason).

Although earnings season has been largely overshadowed by the global health scare, a quick look at a breakdown from Wells Fargo shows just 17% of Growth stocks have missed EPS estimates compared to 32% for Value shares. The punishment for a Growth stock missing on the bottom line has been severe, at more than -4%. Value stocks that beat, on the other hand, have been rewarded with an average 0.94% gain, the bank’s Chris Harvey said Monday.

Bonds gained with equities to start the week, a break with recent precedent. The correlation between 10-year yields and the S&P has been positive since mid-January, a reflection of the extent to which falling yields are now seen more as a sign of heightened growth jitters (bearish for stocks) than as a compelling technical tailwind for equities. Thus, since the virus worries went into overdrive late last month, days when yields rise in recognition of an ostensibly improving growth outlook on “better” news out of China, are generally days when stocks rise too.

Not so on Monday, though. Yields were richer by 2.5bp to 4bp across the curve, even as equities surged.

“10-year yields are in the lower half of a narrow trading range that has dominated the past two weeks, namely 1.50% to 1.68%, and a sharp escalation in pandemic fears could be more than sufficient to retest that zone bottom”, BMO’s Ian Lyngen and Jon Hill said Monday. “As the market is in the process of consolidating in this coronavirus-inspired trading range, there will be a heavy dose of fundamental information to contend with during the week ahead”, they went on to write, citing Powell’s testimony, retail sales and refunding issuance, before cautioning that while “it may be tempting to point to such top tier information as the most meaningful driver of rates, the fact of the matter is that incoming nCov updates will determine the durability of 1.50% as resistance in 10-year yields”.

In other words: It’s all about the virus for bonds, and one reason why is that, at least in the near-term, the Fed will be keen to preserve the “good place” description of monetary policy even as they acknowledge the new risk from the mini-pandemic. That, in turn, means the data is less relevant to the extent you only worry about the data because it influences Fed policy.

The 3-month, 10-year curve continues to flirt with inversion, the 2s10s has erased nearly half of its Q4 re-steepening off the August inversion, and JPMorgan is concerned about the very front end.

Meanwhile, gold rose on Monday, while oil fell and copper is having a hard time getting off the mat. Sometimes, it feels like stocks are out on an island – or maybe out on a “limb” is better.

With that in mind, I’ll leave you with one simple chart.