‘Risk On’ Market Sentiment Never Felt So Tenuous

Global stocks rallied the most in more than three weeks on Tuesday by rallying 1.10 percent. Many investors said they were encouraged by an agreement in principle among U.S. lawmakers to avert another government shutdown, and by signs of progress on trade talks with China. The takeaway: Equity investors are too easy to please.

Although stocks surged, perhaps the better barometer of sentiment is the bond market, which largely shrugged off the developments. Yields on benchmark 10-year Treasuries rose just 3 basis points and, at 2.68 percent, remain comfortably below the high for the year of 2.80 percent reached on Jan. 18. Yes, the border compromise reached between Republicans and Democrats is a positive, but all it really does is reduce some of the potential downside risks for investors. There’s still the issue of trade talks, which a monthly survey by Bank of America Corp. shows is the biggest risk facing global investors. And while President Donald Trump said Tuesday that he’s open to letting a March 1 deadline to raise tariffs on Chinese products slide as discussions between the two countries continue, it’s unclear how that’s necessarily a positive. A growing number of strategists say such a decision would just extend the uncertainty. “An extension with little sign of meaningful progress — no narrow deal on trade — may now be a disappointment,” the strategists at Bank of America wrote in a separate report. “And limited visibility on the timeline for resolution would add to the pressure on global trade.”