After a frenetic February, investors seem to be hoping that March holds true to its proverb: Like a lion out like a lamb.
In fact, February turned out to be a doozy, with the yield of benchmark bonds, represented by the 10-year Finance note TMUBMUSD10Y,
and the 30-year-long TMUBMUSD10Y connection,
adjusting for their biggest monthly increase since 2016, according to Dow Jones Market Data.
The move was a strong reminder to investors that bonds, which are considered vague and straightforward by some investors, can damage the market all in the same way.
Final trading, some $ 2.5 billion in sales near Friday’s close, created a major slowdown for stocks in the last few minutes of the session and that could mean more air pockets ahead. before the market stands next week.
Dow Jones industrial average DJIA,
and S&P 500 SPX index,
they are unlikely to be held above their 50-day moving averages, at 30,863.07 and 3,808.40, respectively, at the end of Friday.
‘Related sales of 10-20% in U.S. shares would also be mind-boggling. But by then, the pain currently attributed to growth-enhancing equity care may have worsened. ‘Citigroup Strategies
“The temptation may not be over,” wrote independent market analyst Stephen Todd, who runs Todd Market Forecast, in a daily note.
However, for all things in terms of production running hotter than expected, stocks in February were still hampering hard yields. For the month, the Dow finished 3.2%, the S&P 500 gained a 2.6% gain in February, and the Nasdaq gained a 0.9% return, despite a weekly loss of 4.9% posted on Friday that marked the worst weekly slip since October. .30.
Many have argued that sales in Nasdaq Composite heavyweights were inevitable, especially with influential stocks like Tesla Inc. TSLA,
becoming more friable with some steps.
“But there has been too much on the market and expanding all year and it can be said for several months at the end of 2020,” Jeff Hirsch, editor of the Stockman’s Almanac, wrote in a note dated Thursday.
“After the big run in the first half of February people have been looking for an excuse to take profits,” he wrote, referring to February as the weak link in the six-month gains. best for the stock market.
The beneficiaries of the recent shift in yields to date appear to be banks, which are benefiting from a steeper yield curve as Treasury yields rise in the long term. , and the finance department of S&P 500 SP500.40,
XLF,
it finished down 0.4%, which, in turn, is the second-best weekly performance of the 11 index segments behind the SP500.10 energy,
which exceeded 4.3%.
SP500.55 Resources,
had the worst player, down 5.1% on the week and SP500.25 consumer choice,
the second worst, off 4.9%.
In February, energy recorded a gain of 21.5% as crude oil prices rose, and finances rose 11.4% on the month, maintaining the best monthly performance and the second-best level.
So what is March?
“Normal trading in March comes in like a lion and out like a lamb with strength in the first few trading days and then choppy to lower trading until the middle of the month when the market tends to go up higher back, ”Hirsch writes.
March will also see “triple witchcraft: happening on the third Friday, when stock options, stock index times and stock index option contracts expire at the same time.
Ultimately, seasonal trends suggest that March will be smooth and could be used as an excuse for further sales, but on that decline it could be catastrophic and provide additional benefits in the future. -spring.
“There is likely to be further consolidation in March, but we expect the market to soon gain support and challenge again following the recent highs,” wrote Hirsch, notes that April is the best month of the year statistically.
Stock trader almanac
Looking beyond seasonal trends, it is uncertain how the rise in bond yields will play out and eventually pass through markets.
On Friday, the 10-year note closed a benchmark at a yield of 1.459% based on 3 near East, and hit an intraday peak at 1.558%, according to FactSet data. The share yield for the S&P 500 companies as a whole was 1.5%, by comparison, while the Dow is 2% and for the Nasdaq Composite at 0.7%.
On the question of the extent to which yields rise will be a problem for equalities, Citigroup’s strategists argue that yields are likely to continue to rise but progress will inspected by the Federal Reserve at some point.
“The Fed is unlikely to allow real U.S. output to rise much above 0%, with high levels of public and private sector movement,” analysts at Citi’s global strategy team wrote in a note. dated Friday with the title “Rising Real Yields: What to Do. ”
Highly modified yields are usually associated with rates on inflation-protected securities, or TIPS, that compensate investors based on inflation expectations.
A real result has been a negative run, which may encourage risk-taking but the spread of the coronavirus vaccine, with a Food and Drug Administration panel Friday recommending approval for JNJ Johnson & Johnson,
one-job vaccination and the prospect of further COVID support from Congress, raising the outlook for inflation.
Citi notes that 10-year TIPS output fell below less than 1% as the Fed’s quantitative easing was initiated last year to help with pressures in financial markets that created the pandemic, but in the a few weeks ago the strategists note that TIPs had climbed to minus. 0.6%.
Read: Here’s what one hedge fund trader says happened in Thursday’s bond market tantrum, which pushed 10-year Treasury yields to 1.60%
Citi speculates that the Fed may not intervene to halt market turmoil until investors see more pain, with the 10-year potential hit 2% before hearing alarm bells, which would bring real results closer to 0%.
“10-20% related sales in U.S. shares also focused on mindfulness. But by then, the pain currently attributed to growth equity records could worsen, ”the Citi analysts write.
Check out: Cracks in this multifaceted relationship between stocks and bonds could cross Wall Street
Yikes!
Analysts do not seem to accept a bearish position per se but warn that a return to a yield closer to the historical average could be painful for investors who are invested heavily in growth stock names relative to assets, including energy and finance, which are considered value investments.
Meanwhile, markets will be looking for more clarity on labor market health next Friday when nonfarm pay data for February is released. One big question about that key measure of U.S. employment health, as well as how the market responds to good news despite rising output, is the impact of colder-than-normal weather. February on the data.
In addition to jobs data, investors will be keeping an eye out this week for manufacturing reports for February from the Institute for Supply Management and construction spending on Monday. Services department data for the month is due on Wednesday, along with a private sector payment report from automated Data Processing.
Read: Normal bond market sales are worse than ‘taper tantrum’ in one key way, the analyst argues
Read also: 3 reasons are the rise in bond yields gaining steam and moving the stock market