Equity markets have been drifting higher as traders square up positions ahead of tomorrow’s Federal Open Market Committee (FOMC) rate decision.  The day before a Fed meeting is known as “Fed Drift Day”, as markets tend to drift higher ahead of the meeting.  Technology stocks have helped lead the way higher.  The market however is off the highs when the Dow was up over 300 points. December has been a terrible month for the Dow and S&P500.  As a matter of fact, we have not had such a poor performance since 1931.  As of now, without some great news from the Fed tomorrow (like no rate hike), the Grinch may have replaced the Santa Clause rally. 

China reduced its holdings in U.S. Treasuries for the fifth consecutive month.  The outflows brought China’s holdings to levels not seen since the middle of 2017.  China wasn’t the only foreign investor to reduce it Treasury holdings.  While China’s holdings fell by $12.5 billion in October, foreign investors overall reduced their holdings by $42.6 billion.  This comes at a time when the U.S. is increasing its issuance of debt as its budget deficit widens.  Private investors have so far picked up the slack, purchasing $44.4 billion.

Crude oil continues its slide, which is pressuring high yield corporate bond prices.  As oil prices decline, energy companies that finance their activities with corporate bonds are forced to issue debt at higher yields.  Energy-related issuers make up approximately 15% of the iShares High Yield Corporate Bond ETF, HYG.  The fund is making a new 52-week low down 0.50% today. 

The S&P Energy Fund, XLE, is trading lower by 1.2% on the back of crude oils 4.85% decline.  West Texas Intermediate crude has broken below $50 and is trading @ $47.50.