TRADING THE WEEK: Market Drifts Higher Amid ‘Reflation’


The equity markets moved higher amid a recently coined trade – reflation – which has kept a solid floor on stock prices.

The equity markets had little to cheer or trade about last week as the shortened work week, lackluster economic data, continued lack of volatility and quiet geopolitical landscape provided traders with little impetus to trade.

But, according to William Mingione, Head of Equities at Drexel Hamilton, trading in the equity markets did seems to be coming back after slow start to the week due to the U.S. Memorial Day holiday. As he saw it, with the U.S. Treasury 10-year yield are at or near a bottom, buying seems to be the trade.

William Mingione, Drexel Hamilton

“A few weeks back we said that the 10-year would be overbought at 2.15% and would likely be the level yields would bottom at,’ Mingione began. “We would be buyers of financials if the 10-year holds these levels and that helped provide some support after the initial sell off Friday morning. The rally appears to becoming more and more narrow as we’ve continued to go higher.”

In what he termed the end of the “reflation trade” or the market ending the purchases of fixed income securities and buying stocks, such as utilities and technologies, can move higher as the 10-year Treasury note yield has fallen to its lowest close since April 18.

“More recently, we’ve been led higher by utilities and large cap technology,” Mingione said. “Financials and energy have been the weakest groups. Energy has dramatically underperformed year to date and has gotten decimated over the course of the last week.”

He added that May brought a new all-time monthly high for the S&P, which gained close to 1%. Best performing sectors in the S&P for May were the aforementioned technology and utility stocks, up 4.1% and 3.6% respectively.

“We have seemed to come through most of the earnings calendar with markets trading strong,” Mingione concluded. “No real important economic numbers are critical this week. All this means is that the markets will likely look forward to Comey’s testimony.  Markets will likely react to his testimony.”

Fired FBI director James Comey plans to testify publicly in the Senate later this week to address lingering  accusations that President Donald Trump pressured him to end his investigation into a top Trump aide’s ties to Russia. According to CNN, Comey is expected to appear before the Senate Intelligence Committee on June 8.

On the interest rate front, Federal Reserve Governor Lael Brainard said soft inflation could cause her to reassess the path forward for monetary policy should it linger, even as the global economic outlook brightens and U.S. growth looks poised to rebound.

“If the soft inflation data persist, that would be concerning and, ultimately, could lead me to reassess the appropriate path of policy,” Brainard said in prepared remarks last Tuesday. She said her baseline expectation is that “it likely will be appropriate soon to adjust the federal funds rate” and start shrinking the balance sheet.

Brainard’s remarks come amid last Friday’s tepid Us employment report which showed lackluster job growth – only 138,000 new jobs were created in May. This level falls way under the 250,000 per month rate that is often used as the standard for a healthy growing economy and the 185,000 level economists were looking for.

Wages also grew less than expected, with average hourly earnings rising at a 2.5 percent annualized rate.

“It’s hard to ignore the U.S. economy added fewer jobs than expected and, more importantly, the number came in below the 12-month average of 181,000,” said Sharon Stark, managing director of fixed income strategies at Incapital.

The market moved higher on the news as the Dow Jones Industrial Average topped 21,000 again and the Nasdaq hit fresh all-time highs before pulling back some.

Trading last week reflected the post jobs report data as volume inched higher to 6.52 billion shares from the week prior when volume was 6.33 billion shares, according to Bats Global Markets. Three weeks ago volume topped 7 billion shares per day.

On the political front, last week saw President Trump made several decisions that connect to his “America First” strategy. After traveling overseas, he indicated his desire to withdraw from the Paris climate accord, and his communications with NATO leaders in Europe last week strongly indicate that he is disagreeing on the validity of transatlantic trade, which Trump sees as detrimental to American interests. Trump’s opposition to transatlantic trade is considered to be connected to his concern for America’s needs over international needs, as he sees transatlantic trade as harming U.S influence.

In other news, Cowen Inc. announced it has completed its acquisition of Convergex Group, LLC for a total consideration of $100.7 million (including seller transaction expenses) and is comprised of $53.1 million in cash and $47.6 million in Cowen common stock. As a result, Convergex has been renamed Cowen Execution Services LLC and Convergex Limited, its London-based brokerage, has been renamed Cowen Execution Services Limited.

Cowen also decided to discontinue the Millennium ATS midpoint matching offering. Millennium’s Form ATS has been amended to reflect this change and all subscribers and trading partners have been notified of the pending change. All midpoint matching in the Millennium ATS will end as of June 23, 2017.  Cowen will continue to operate the Millennium Crossing Facility (MCF), which is part of the Millennium ATS. This trade printing function runs separately from the midpoint matching engine. The MCF executes pre-matched orders and prints the resulting trades to the tape on behalf of exchange and broker-dealer partners.

Also, JPMorgan Chase and Bank of America reported weak trading revenues in the second quarter, according to separate statements from their top executives. The banks’ stock prices fell around 2% after the announcements and Goldman Sachs Group’s stock price dropped more than 3%. All cited lower volatility and opportunities to execute.
This Week’s U.S. Economic Indicators of Interest:


Productivity and Costs

Factory Orders



Redbook Retail Sales


Consumer Credit


Jobless Claims

Quarterly Refunding Announcement


Wholesale Trade



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