Diverging Indexes
The DOW hit a new high today as the Nasdaq Index entered the fourth week of declines.
Nasdaq Enters a Correction
A “correction” is usually defined as a 10% decline. It becomes a “bear market” at a 20% decline.
The Nasdaq is In Correction Territory
The Nasdaq dropped 310.99 points, or 2.4%, to 12609.16, extending the declines from its Feb. 12 record to more than 10%. Rising bond yields dent the allure of growth stocks like those of big tech companies.
Apple shares dropped $5.06, or 4.2%, to $116.36, extending their declines for the year to 12%. Netflix NFLX -4.47% and Facebook FB -3.39% posted declines of more than 3%, while Tesla, another investor favorite, shed $34.95, or 5.8%, to $563. Shares of the electric-vehicle maker have dropped more than 20% in 2021.
Meanwhile, a rotation in the stock market continued: The Dow Jones Industrial Average surged 306.14 points, or 1%, to 31802.44 following progress on a new fiscal stimulus bill that brightened economic prospects. The blue-chip index—which is weighted more heavily toward cyclical sectors—surged as much as 652 points earlier in the session, setting a new intraday record before pulling back.
The S&P 500 fell 20.59 points, or 0.5%, to 3821.35, pulled lower by losses in the tech, communication services and healthcare groups.
Divergence Won’t Last
This divergence won’t last. Either the S&P and Dow join the correction party or hiding out in the Dow will fail.
My guess is hiding out in the Dow will fail.
However, some analysists blame this all on rising yields as bonds entered into a sixth week of declines allegedly sapping demand for technology shares.
My Treasury guess, and I have done far better at interest rate calls than stock market calls, is that we are nearing the end of rising yields for at least some time.
For discussion, please see Small Speculators Pile Into Treasury Shorts, Is a Short Squeeze Coming?
Mish
We are Japan now and have been for awhile. There is a happy medium with yields remaining flat for a long time while stocks do their thing based on actual earnings performance. I expect a booming economy come late 2021 as Covid is in the rear view mirror with the J&J vaccine widely available. I still see it as the decade of 1/1/1 or 2/2/2.
The FED is going to unleash a flood of QE to squash yields and to keep the gov’t afloat. I’m not sure what they’re waiting for. Maybe for the stimulus to pass so they can plan how they’ll do it.
Look at the slope of the descending trend line on the 30 year. They will intervene when it hits the top of the channel around 2.75% yield. It’s been reliable for a number of years, anyway.
Technically gold broke down on Friday, and I am looking to exit my fun trade on today’s bounce. A strong dollar and high bond yields are expected to continue to weigh on gold…I expect more downside….and there is not too much support below. We could easily test 1600.
I’m out with a small profit. Discretion is the better part of valor right now.
The Most Important Chart of the Decade I take comfort in knowing that inflation is now the headline risk, and when’s the last time we saw the big risk coming? https://theirrelevantinvestor.com/2021/03/07/the-most-important-chart-of-the-decade/
I think plans are going into place to feed helicopter money to the consumers to stimulate in the next market meltdown because asset prices are already stratospheric even with real interest rates in the -2.5% range plus.
The Bull Market is fizzling out. No More Bull. https://youtu.be/J9-SXcPGdkg
Wall Street windows are open and jump ready. Woman is screaming after Looking at her bank. https://www.youtube.com/watch?v=DcVQQ_uVRIk&feature=youtu.be&ab_channel=PePPeMusic
German 10 year is at -.3%. Geeze, the Italy 10 year is at .7%. Hard to believe people would want an Italian 10year that pays 50% less than a U.S. 10 year or is the U.S. economy that much worse than Italy?
I am sitting on some AT&T and VZ stock. PEs are near single digits and pay dividends of 7% and 4.5%. both are closer to covid lows and not even close to pre covid prices.
“My Treasury guess … is that we are nearing the end of rising yields for at least some time.”
is this a shot in the dark , intuitive guess or is it a guess based on data / subtantiation / historical patterns ? if the latter, can you state that substantiation.
i for one believe that if those yields keep rising, eventually intervention twists will have to be used to relieve unsustainable interest on debt
Cheers, Mish
I believe Mish has been thinking the Fed will start buying treasuries, but “Yellen says higher Treasury yields signal recovery, not inflation” so why would she want rates to drop if it’s part of the recovery?
Good point, but I think she’s trying to put a good spin on it. Everyone can see there’s a lot of concern about inflation. Perhaps her comments are based on a realisation that holding yields down under such circumstances might be very difficult. On the other hand, allowing them to rise too far will be very costly for the government.
They’re supposed to be focussed on unemployment, to what degree does say a 1 or 2% rise in say 10 year yields affect unemployment?
They also want inflation of course.
They are also talking out the side of their mouth . The ECB being dovish and protecting bond yields is what the market wants to see . The market enjoyed the crumb that ECB monetized a tad more in data this am and the ECB on Thursday after their meeting will deliver more In the way of yield moving talk
They are also talking out the side of their mouth . The ECB being dovish and protecting bond yields is what the market wants to see . The market enjoyed the crumb that ECB monetized a tad more in data this am and the ECB on Thursday after their meeting will deliver more In the way of yield moving talk