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Illustration: Eniola Odetunde/Axios

Stocks rallied overnight in Asia and U.S. stock futures are poised to open higher as markets have shown little impact from news that President Trump was diagnosed with COVID-19 on Friday.

The state of play: Even in the immediate aftermath of Trump sharing the news on Twitter, currency and Treasury markets, which historically have been more attuned to economic and geopolitical upheaval than stocks, had little reaction.

By the numbers: Friday's 1% fall for the S&P 500 was only the seventh biggest decline for the index out of 11 negative sessions in the last month of trading.

  • In fact, two S&P 500 sectors — industrials and financials, which are said to be more sensitive to the overall health of the economy — rallied 1.1% and 0.7%, respectively, on Friday.
  • The 2.2% drop on the Nasdaq was the fourth biggest decline during that period, and was about half the size of two much larger falls on Sept. 3 and Sept. 8 that many market participants chalked up to profit-taking or the unwinding of positions.
  • The Dow had its eighth worst day of the last 30 sessions, declining by less than half a percent.

The intrigue: The CBOE's volatility index, the VIX, rose 4.5% Friday but that increase was less than a third of two other jumps in mid-September.

  • Despite Trump’s diagnosis, futures on the VIX still show traders are far more worried about the time period after the Nov. 3 election.
  • The 2020 election is the most expensive event risk on record, per Bloomberg — with insurance bets on implied volatility six times their normal level, according to JPMorgan analysts.

The big picture: With the Fed expected to keep U.S. interest rates at zero until at least the end of 2023 and to provide additional liquidity to the market should stock prices fall significantly, stock traders seem unfazed by Trump's uncertain health status or the declining likelihood of fiscal stimulus this year.

  • The Fed and other central banks also appear to be in the driver's seat on the movement of government bonds and FX as quantitative easing programs have held yields in a tight range since March.
  • Despite the decline in stock prices on Friday, Treasury yields rose and the dollar weakened, bucking traditional risk aversion patterns.

Go deeper

Dion Rabouin, author of Markets
Jan 12, 2021 - Economy & Business

For all the fuss, the dollar rally has been underwhelming so far

Data: FactSet; Chart: Axios Visuals

The dollar index rose for the fourth straight session on Monday, worrying investors that the recent rally that has sent the dollar lower as stocks have risen higher could be coming undone.

What they're saying: "The appreciation of the dollar is coming at a time of not only rising yields but a risk-off period created by heightened uncertainty about political developments in the U.S.," Paresh Upadhyaya, director of currency strategy and portfolio manager for Amundi Pioneer Asset Management, told Reuters.

Dion Rabouin, author of Markets
Jan 12, 2021 - Economy & Business

The big hedge

Illustration: Aïda Amer/Axios

Warnings that the U.S. equity market looks to be in a bubble are coming from a slew of Wall Street asset managers and strategists as stocks continue to reach new record highs and markets display abnormal behavior. But data show that while investors are hedging their bets, there is hardly a mad dash to sell out of equity positions.

What's happening: As the 10-year Treasury yield rises solidly above 1% — its highest level in nearly a year — a growing contingent of investors fear that a crash is imminent without the ballast of rock-bottom interest rates.

Dion Rabouin, author of Markets
Jan 11, 2021 - Economy & Business

Criticism of the Fed is going mainstream

Illustration: Eniola Odetunde/Axios

Big names in the world of finance are beginning to call out the Fed and other central banks for their role in ramping up economic inequality and manipulating financial markets — a departure from the praise they received for most of last year.

Why it matters: Wall Street was the only pillar of solid support. Most Americans say they don't trust the Fed and politicians look to be taking aim at the central bank for overreaching with its unprecedented actions in March.

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