After the crazy February, investors may hope that March will live up to its proverb: Lamb like a lion.
Indeed, February did not perform well. The benchmark bond yield is expressed in the 10-year U.S. Treasury bond TMUBMUSD10Y.
And the 30-year long-term bond TMUBMUSD10Y,
Dow Jones market data shows that this is the largest monthly increase since 2016.
This move has issued a strong reminder to investors that bonds are regarded by some investors as secular and bland bonds that may cause the same damage to the market.
The final trading boom, with sales of approximately $2.5 billion at the close of trading on Friday, caused a major downward drag on the stock market in the last few minutes of the trading day and may mean more shorts before the market stabilizes next week.
Dow Jones Industrial Average Dow Jones Industrial Average,
And the S&P 500 index SPX,
When the market closed last Friday, they barely maintained above the 50-day moving average at 30,863.07 and 3,808.40, respectively.
‘The 10-20% sell-off of related US stocks will also cause people’s attention. But until then, the pain currently shifting to growth stock portfolios may get worse. ”Citigroup Strategist
Stephen Todd, an independent market analyst at Todd Market Forecast, wrote in the daily newspaper: “The turmoil may not be over.”
However, despite all the enthusiasm for yields that exceeded expectations, the February stock still managed to make a decent return. This month, the Dow Jones Industrial Average is up 3.2%, the S&P 500 is up 2.6% in February, and the Nasdaq is up 0.9%, despite Friday’s weekly loss of 4.9%, which is since October. The worst weekly decline since. .30.
Many people believe that it is inevitable that the high-tech Nasdaq Composite Index will sell off, especially in Tesla (Tesla Inc.), TSLA,
Only through some measures has become more frothy.
“Stock Traders’ Almanac” editor Jeff Hirsch wrote in a report on Thursday: “However, the market has been overbought and it may last for several months at the end of 2020.”
He wrote: “After the stock market surged in the first half of February, people have been looking for excuses to make profits.” He described February as the weak link in the stock market, which is usually the best period in six months.
So far, the beneficiaries of recent yield trends seem to be banks. With the rise in long-term Treasury yields and the SP500.40 in the S&P 500 financial industry, banks have benefited from the steepness of the yield curve.
In the end, it fell by 0.4%, which was the second best weekly performance among the 11 industries in the index, second only to energy SP500.10.
Utility tool SP500.55,
The worst performance, with a weekly decline of 5.1%, and the SP500.25 at the discretion of consumers
Ranked second, down 4.9%.
In February, energy prices rose by 21.5% due to rising crude oil prices, while the financial sector rose 11.4% this month, setting the best and second-best monthly performance.
So, what is the inventory in March?
Hirsch wrote: “A typical March transaction comes in like a lion, and like a lamb, it shows strength in the first few trading days, and then decreases trading volatility until mid-month, when the market tends to rebound. ,” Hirsch wrote.
March also saw the “triple devil: it happened on the third Friday, when stock options, stock index futures and stock index options contracts expire at the same time.
In the end, seasonal trends indicate that March will be unstable and can be used as an excuse for further selling, but during this downturn there may be severe fluctuations and further rises in the spring.
Hirsch wrote: “May further consolidation in March, but we expect the market will find support in the short term, and then challenge the recent highs again.” He pointed out that statistically, April is the best month of the year. .
In addition to seasonal trends, it is uncertain how the rise in bond yields will work and eventually spread in the market.
According to data from FactSet, on Friday, the closing price of the benchmark 10-year Treasury note was 1.459%, based on the closing price at 3 pm Eastern Time, and hit an intraday peak of 1.5558%. In contrast, the S&P 500 index component companies have a dividend yield of 1.5%, compared with 2% for the Dow and 0.7% for the Nasdaq Composite.
As for the extent to which the yield will pose a problem to the stock market, Citigroup’s strategists believe that the yield may continue to rise, but the increase will be checked by the Federal Reserve to a certain extent.
Analysts from Citi’s global strategy team wrote in a report entitled “Improving Real Yields: What to Do” published on Friday: “Given the high level of leverage in the public and private sectors, the Federal Reserve is unlikely to allow the US to gain real gains. The rate greatly exceeds 0%.”. “
The actual adjusted yield is usually related to the interest rate of Treasury Inflation Protected Securities (TIPS), which compensates investors based on inflation expectations.
The actual rate of return has been negative, which can be said to encourage risk-taking, but with the launch of the coronavirus vaccine, the U.S. Food and Drug Administration (FDA) recommended on Friday to approve Johnson & Johnson’s JNJ,
The single-stab vaccine and the prospect of further COVID assistance from Congress are raising the outlook for inflation.
Citi pointed out that as the Federal Reserve began implementing quantitative easing last year to ease financial market pressures caused by the pandemic, the 10-year TIPS yield fell below minus 1%, but strategists have noted that in the past few weeks, TIP The yield has climbed to negative value. 0.6%.
read: A hedge fund trader was talking about what happened during the tantrum in the bond market on Thursday, which brought the 10-year U.S. Treasury yield to 1.60%
Citi speculates that unless investors feel more painful, the Fed may not intervene to stop market turmoil, and the ten-year period may reach 2% before the alarm sounds, which will bring the actual yield close to 0%.
“The related US stock sell-off of 10-20% will also cause people’s attention. But until then, the current pain of shifting to growth stock portfolios may get worse,” Citi analysts wrote.
check out: The breakdown of this decades-old relationship between stocks and bonds could upset Wall Street
Analysts don’t seem to be taking a bearish attitude, but they warn that if yields are close to historically normal levels, then for investors who invest heavily in growth stocks rather than assets such as energy and finance, this could be Painful, is considered a value investment.
At the same time, when the non-agricultural employment data for February is released next Friday, the market will seek clearer labor market health information. A big question about the key indicators of US employment status is how the market reacts to the good news in the face of rising yields, not the impact of normal February weather on the data.
In addition to employment data, investors will also pay attention this week to the Supply Management Association’s February manufacturing report and Monday’s construction spending. This month’s service industry data and a private sector salary report with automated data processing will be released on Wednesday.
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