Economist's Insights

Today’s Trading Activity – Bank Equities Hit by An Eighth Day of Flattening, Ongoing Tax Debate:

Nov 7, 2017

The Treasury curve didn’t move much all told on Tuesday but the continued flattening may have been one catalyst for the divergent sector performance that kept the major U.S. equity indices essentially unchanged for the day. The 2-year yield rose 0.8 bps to 1.63% while the 10-year yield fell 0.2 bps to 2.31%. The net result was an eighth consecutive day of flattening between 2s and 10s (the longest stretch since November 2015) with the respective spread falling to 68 bps and to a new 10-year low. While investors remained focused on the House Ways and Means Committee and its markup of the tax plan, the continued flattening may have been a driving force behind financials’ worst single-day performance since September. The S&P 500’s financial sector dropped 1.33% and was the biggest drag on the index. Greater-than-1% gains in the defensive utilities and consumer staples sectors, however, helped neutralized the drag from U.S. banks as the S&P lost just 0.02% on a net basis. The Dow turned positive in the final minutes of trading and its 0.04% gain was sufficient to solidify its 58th record high close for 2017. The Dollar remained stronger but pulled back off its highs and crude prices extended early morning losses.