Yesterday markets extended to the upside with the S&P 500 closing up nearly 1% at a new all-time high clearing 7,500. The Dow Jones Industrial Average was up a similar amount, closing back above 50k for the first time since February. Positive vibes coming out of the China summit, strong tech earnings, a positive retail sales report and the Clarity Act clearing a procedural hurdle all helped sentiment. As compared to the rest of the week the breadth, improved with consumer facing companies, financials and industrials joining the party. Some of the upside convexity may have been related to all of the recent upside call buying, as we approached today’s options expiration. Oil prices and yields were tame but continued to hold just under recent highs (can you sense the foreshadowing?).

Coming into today’s session the S&P 500 was up 1.4% WTD, looking to extend its winning streak to 7 consecutive weeks. However, as mentioned above the breadth has been poor with the equal weight version of the index and the small and midcap indices all down on the week. The winning streak is in jeopardy as futures have come under significant pressure throughout the overnight session with S&P 500 and R2K futures both down >1%. There isn’t a particular headline to point to for the weakness but rather a mix concerns causing the downdraft including the unsustainable nature of the recent rally particularly within the tech sector.

From my perspective the biggest driver of the weakness is stemming from a sharp move higher in global yields overnight after a hot Japan PPI print, the continued move higher in oil prices and the ongoing political situation in the UK. A case of “Gradually, then suddenly”, to quote Hemingway. Yields in Japan are up 2-9bps across the curve. Yields in Europe are also up sharply with Germany up ~8bps but yields in the periphery up 10-20bps. UK Gilts are also up ~15bps. This is pulling US Treasury yields up as well and they are starting to decisively push through recent highs with the 2yr pushing through 4%, the 10yr through 4.5% and the 30yr through 5%. After breaking back above its 200d yesterday the USD index s also moving up ~0.5%.