TRADE OPTIMISM PUSHES STOCK INDEXES FURTHER INTO RECORD TERRITORY -- SECTOR LEADERS ARE ENERGY, FINANCIALS, INDUSTRIALS, TECHNOLOGY, AND MATERIALS -- TEN-YEAR BOND YIELD TESTS SEPTEMBER HIGH AND PUSHES BOND PROXIES LOWER -- TRANSPORTS HIT 52-WEEK HIGHS

STOCK INDEXES HIT NEW RECORDS... Optimism on trade between the U.S. and China is pushing risk assets higher and defensive ones lower.   All three major U.S. stock indexes are hitting new records this morning.  Chart 1 shows the S&P 500 in record territory.  Eight sector SPDRs are in the black with financials, industrials, technology, and materials in record territory.  Materials are being led higher by economically-sensitive copper stocks as that commodity is rising; while defensive gold miners are following the yellow metal lower.  A jump in the price of crude oil is making energy the day's strongest sector.  Bond proxies are selling off.

TREASURY YIELDS JUMP... Chart 2 shows the 10-Year Treasury Yield climbing 8 basis points this morning to 1.90%.  That puts the TNX into a test of its mid-September peak at the same level.   A close above that barrier would confirm that bond yields have bottomed.  And facilitate more rotation out of bonds and into more economically-sensitive stocks.  Like transports.

TRANSPORTS REACH 52-WEEK HIGH...Chart 3 shows the Dow Jones Transportation Average trading above its April closing high to reach the highest level in more than a year.   Economically-sensitive transports have been catching up to the rest of the market over the last two months.  They're rising faster than the Dow Industrials.  And utilities.

Chart 4 plots a relative strength ratio of the Dow Transports divided by the Dow Utilities.  And shows that ratio turning up during October and having risen above its 200-day moving average (red line); and a falling trendline extending back to last September.  That rising ratio reflects the recent rotation out of defensive bond proxies (like utilities) and into economically-sensitive cyclical stocks like the transports.  That's consistent with rising bond yields and a more optimistic mood on the global economy.

EMERGING MARKETS ISHARES NEAR UPSIDE BREAKOUT...That renewed optimism on the global economy is being reflected by rising foreign stocks.  The MSCI All Country World ex US ishares (ACWX) has risen to the highest level in eighteen months; and has been led higher by developed markets in Europe and Japan.  Emerging markets are also rising.

Chart 5 show the MSCI Emerging Markets iShares (EEM) nearing a test of their April high.  A decisive close above that chart barrier would put the EEM at the highest level since the summer of 2018.  China accounts for a third of the EEM and is contributing to its recent rise.  So are Asian countries closely tied to China like South Korea and Taiwan which are also rising.