02-04-19 Market Commentary

U.S. equities are pointing to a relatively flat opening as the market tries to keep the recent winning streak alive. Last week, the Dow Jones Industrial Average was able to close above 25,000 for the first time since December 4th and the index is up 15% since the Christmas Eve bottom. Not surprisingly, this reversal coincides with the Fed taking a dovish approach and the probability of a hike in Fed Funds has been plummeting in the futures market. Going into 2020, the highest probability of a hike at any meeting is now only 6.2%!

On the fixed income front, Treasury yields are slightly higher across the curve this morning. The 2-yr is a 2.51% while the 10-yr is 2.693%. The 10-yr has been mostly range bound since mid-December, bouncing around between 2.6% and 2.80%. We continue to have clients put excess liquidity to work when we trade at the upper end of this range.

There has been a growing trend in earnings releases recently where banks are taking large losses to move out of low yielding, underwater securities into higher yielding securities. When done correctly, we believe this strategy make sense as it can significantly increase core earnings moving forward. Our preference is to keep the losses moderate and focus on shorter pay-back periods. The best opportunities are when the loss can be more than offset by the increased income within the year, with our target being two quarters or less. Don’t hesitate to reach out to a member of the Ambassador team to see if this strategy can make sense for your institution.