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Stocks Rise as U.S.- China Trade Tensions Thaw

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Stocks rose Friday, as the U.S. and China’s trade relations improved for the moment. Thursday’s trading was risk-on, but fund managers seem bearish, according to Bank of America. 

All three major U.S. indices rose, with the S&P 500 up 1%. The 10 year treasury yield rose to 0.66%. The yield has remained compressed of late as stocks have rallied, as the Federal Reserve’s stimulus measures aim to keep rates low. But recently, the treasury has issued tens of billions of dollars of new treasuries to fund the fiscal spending program, putting supply and price pressure on the 10 year yield. 

The move into safety has been marked by a massive move into cash. 

But Thursday, sentiment was firm. The U.S. and China reportedly spoke and agreed to try to honor their phase one trade deal signed in January, which reduces tariffs and services a somewhat of a truce. This is after President Trump threatened to add more tariffs in retaliation for China’s handling of the Coronavirus outbreak. .

"The US and China are seemingly still on good terms over the phase one trade deal so that has removed some anxiety across markets,” wrote Jasper Lawler, head of research at London Capital Group. 

Positively, it was cyclical sectors leading the way Thursday. The Consumer Discretionary Equal Weight S&P 500 index rose 1.53%. The Invesco Banking ETF  (KBWB) - Get Invesco KBW Bank ETF Report rose 2.5%. Several industrial stocks rallied. Big tech, a place of shelter and secular growth trends for investors of late, took a back seat, as investors felt bullish about economic prospects post-recession. 

This came even as the unemployment rate hit 14.7% with 20.5M jobs lost in April, a data point investors knew they’d look through. 

But bearish sentiment lies in the weeds. 

Bank of America Global Research’s fund manager survey revealed that 9 out of 10 managers see the rally off the March 23 as a bear market rally. And 6 out of 10 see a retest of the low. “Extreme bearishness” was the firm’s read of its survey participants. 

Bank of America noted that cash holdings globally have swelled to $5 trillion, a 118% increase since early February, and the highest level ever by several times. This means cash is on the sidelines ready to be invested, but that as investors have “nibbled” at shares, according to a manager TheStreet spoke with, they’ve kept their dry powder. 

Stocks are priced at rich valuations against risks that lockdown easings spur more virus infections or that the economy is in for a rockier recovery that anticipated. Bank of America says in the past week $50 billion has flowed into cash, with just $11 billion flowing into bonds. 

In other news, Uber  (UBER) - Get Uber Technologies, Inc. Report shares rose after the company beat on revenue estimates on the strength go Uber Eats, missed on earnings and said it may see ride-sharing demand improvements and that it will continue to keep costs low. The stock rose 11%. 

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