Where we are: Dow futures currently trade at 50159, up 0.21% on the day, having established a range between 49984 and 50216. The Dow Jones cash index closed yesterday at 49911. With futures pointing higher, the index is poised to test the 50,250 level during the New York session, potentially pushing toward new all-time highs.
What’s driving it: US yields are pulling back, with the 10-year currently at 4.316%, down 2.8 basis points. This easing in yields, coupled with a VIX at 17.38 reflecting suppressed volatility, is supporting the equity rally. While the 10Y real yield has ticked up slightly to 1.96%, the pullback in nominals is having more sway. There’s no obvious Fed catalyst today, meaning this is mostly flow and momentum after strong earnings broadly.
- The 2-year yield is down 4 basis points to 3.834%, further steepening the 2s10s curve, which now sits at 0.49%.
- The Citi news – shares down 3% pre-market after modest profit targets – might clip the wings of the rally, but broader sentiment is strong.
- Speculator positioning in the Dow Jones is modestly short, at -1,431 contracts, which is only at the 56th percentile. This is not extreme enough to present any major squeeze risk.
NY session focus: Keep an eye on the 08:30 ET Unemployment Claims data; a miss to the upside (higher claims) could trigger a further rally in bonds and stocks. The key level to watch is 50,250; a break above confirms the bullish trend. The trade that’s working is buying dips in mega-cap tech, riding the earnings wave. The trade at risk is shorting the Dow on valuation concerns – momentum is too strong right now. The pain trade is a sharp reversal in risk sentiment, triggered by a hawkish surprise from the Fed speakers next week.