Friday, March 18, 2022

In early markets this Friday, it would appear the week is constructing red bookends in what is otherwise a very positive week of trading. Indexes are slowing trimming losses as the opening bell approaches: -180 points on the Dow, -115 on the Nasdaq and -30 points on the S&P 500. So far, however, this looks like the best week of market gains since November 2020.

The tech-heavy, much beleaguered Nasdaq has gained +6% this week alone, with the Dow and S&P +5%. Both the Dow and S&P are now at one-month highs; the Nasdaq is at its highest point since March 2nd. It’s a four-day winning streak for the Dow (albeit barely: Monday’s close was +0.003%), and three days up for the S&P and Nasdaq.

As we prepare for the final open of the week, President Biden is speaking with President Xi this morning, in what looks from the outside to be negotiations headed not really anywhere. Both the U.S. and China are issuing stern warnings to each other in determining each superpower’s role in the war in Ukraine. Biden will want Xi to agree to not supply funds and weaponry to Russia, but China has a sizable list of demands, including the U.S. disallowing Taiwanese independence.

To the surprise of no one, the Chinese government drives a hard bargain. To make any progress whatsoever would likely be a feather in the cap for Biden; there is also residual animosity left over from ex-President Trump’s trade war with China in 2018-2019, so the relationship between the two countries is already not on the best footing.

The gap between 2-year and 10-year bond yields remains tight: 1.95% and 2.16%, respectively, barely 20 basis points between them. If there is good news in the regard, the velocity of these yield rates has slowed in recent days, and though the flattening is now a real issue worth considering, we’ve not yet seen an inversion. Inverting the yield curve between these two bond issuances is a forward indicator of economic recession.

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