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*The S&P 500 and Nasdaq closed lower on Monday as climbing Treasury yields and prospects of rising inflation triggered valuation concerns, hitting shares of high-flying growth companies. S&P 500 books fifth straight loss (its longest such streak in a year), Nasdaq sinks 2.5% as elevated bond yields weigh on tech shares. The Dow Jones Industrials benchmark eked out modest gains, amid worries that rising bond yields could render equities too expensive. The Dow Jones Industrial Average reversed a 200-point loss to close 27.37 points higher. The last time the Dow ended higher, while the Nasdaq fell more than 2.4% was May 29, 2001. U.S. benchmark 10-year Treasury yields were up at 1.363%. Since the beginning of February, 10-year yields have risen about 26 basis points, on track for their largest monthly gain in three years. Gains for energy shares and financial companies limited losses on the Dow Jones Industrial Average*
Long-term Treasury yields were on the climb again Monday, after last week notching their biggest rise in six weeks, sapping some enthusiasm of the stock-market bulls.
*The Treasury yields are up, but a point to be noted that junk bond yields hit all-time lows last week, suggesting there has been a shift from the safety of Treasuries to the riskiness of corporates among investors. That’s bullish for stocks. Many on Wall Street still believe that the jump in bond yields reflects a sign of growing confidence in the economic recovery and stocks should be able to absorb higher rates amid strong earnings. Given that we are in the early stages of an economic recovery, monetary and fiscal policy remains supportive, the sharp rebound in earnings, and favorable relative valuations, we maintain our overweight to equities.*
*Higher “risk-free” yields can make it difficult to justify high valuations for equities, as it reduces the value of their future profits to investors. In a backdrop of rising rates and faster economic growth, technology companies with rapidly increasing earnings become less attractive to investors.*
Definitely, yields are the big thing, and investors also have been worried in recent weeks about the threat of “a big spike” in inflation..
Yields have been boosted by expectations that aggressive rounds of fiscal spending on top of extraordinary loose monetary policy by the Federal Reserve will stoke near-term inflationary pressures.
The bond market appears to be pricing in strong economic data and GDP gains ahead, driven by increased consumer and business activity, and further pushed by more expected government stimulus.
The recent weakness in tech, while so-called cyclical stocks benefited, underscored more of a reflection of pent-up expectations for a reopening of the economy.
Congress is expected to pass another round of aid spending set to come in near President Joe Biden’s $1.9 trillion package. Investors also were penciling in the possibility of a large, long-term round of infrastructure spending.
By: via @AlliesFin Serve Stock Market
