The Fed could be a catalyst for bonds, which could drive stock growth in the coming week

Bonds could be volatile in the coming week. Higher yields could make it difficult for large technology and other growth stocks to catch on.

Rising bond yields have challenged growth stocks. Names like Apple, Tesla, and Amazon have been on the decline as investors move to cycling organizations that are doing well in economic recovery. Nevertheless, the S&P 500 and the Dow both closed at the highest levels on Friday, while the Nasdaq Composite was lower.

The Nasdaq, which is home to tech giants, gained 3% in the past week, but is down 5.5% over last month.

The bond market in the coming week is likely to take over from the Federal Reserve, which meets Tuesday and Wednesday.

The central bank is expected to take a nod to much better growth. Bond binoculars are also monitoring to see if Fed officials tweak their flat rate outlook, which no longer includes any rate hike through 2023.

“Markets have too high expectations around what the Fed is going to do or say,” said Gregory Peters, head of multi-sector and strategy at PGIM’s Fixed Income. “I think the message is going to be consistent.”

He said Fed Chairman Jerome Powell seems to sound dovish and is unlikely to pass any time on when the central bank changes its bond buying program or other policy.

Bond yields, which are moving against price, have been rising on a better outlook for the economy.

That trade was also reflected in the stock market, with the Dow up 4% for the week ending Friday at 32,778. Consumer selective stocks, which include sales, among the top performers, up 5.7%, were driven by the hope that individuals would spend their $ 1,400 incentive reviews.

Yields were higher on Friday after President Joe Biden said all adults would be eligible for vaccination by May 1. 10-year Treasury yields fell at a high of 1.642% – the highest level in more than a year.

This is the key level to watch for as it affects mortgages and consumer and other business loans.

“The economy is going to be incredibly strong this year – deficit spending, reopening, vaccines,” said Peters from PGIM.

“It looks like for next year, all the numbers are being revised higher,” he said. “So this thing could have some steady growth, so I’m ‘thinking pressure on rates will move higher. “

Bond yields rose sharply over the past month. The rapid pace of movement has made stocks jittery as investors move to higher levels. The 10-year Treasury yield was 1.16% on Feb. 12.

Over the past month, energy stocks have risen nearly 20%, financial stocks are up 10.2%, and businesses are up 7%. S&P’s technology share was down 5.4% over the past month, while communications services, which includes internet names, rose 0.8%.

Rates are a higher challenge for technology and other growth stocks because these sectors are expensive and have high price-to-employment ratios.

“When rates are really low, valuations don’t really matter to people,” said Peter Boockvar, chief investment officer at Bleakley Global Advisors.

“If rates are low, there is no penalty,” he said. “If levels start to go up, people become a lot more aware of values, and that’s what we’ve seen here.”

Scott Redler, a partner with T3live.com, follows short-term stock market tactics and trades many of the growth stocks. Recently, however, he found himself sitting in many value and round names.

“The names I’m in – Visa, GM, Ford, Macy’s, 3M. Those are the biggest winners I got this week,” he said. “It’s been really hard to make money in Apple, Facebook and Tesla.”

The Nasdaq has been hit hard by the rise in interest rates. Apple was down 0.3% last week but down 10.6% last month. The S&P 500 finished at a peak of 3,943 and rose 2.6% in the past week, but is flat over the past month, up just 0.2%.

“Rate variability could cause another inflection point in tech,” Redler said. “Last week, tech hit its low response rate, and here it is [past] last week there was a tremendous kick. The question is, ‘Is that it?’ “

“Next Wednesday, Powell could be an important issue,” he said. “Rates made higher and technology higher than last Friday’s rates so the market may be becoming more comfortable.”

Apple’s installation is unusual for the tech bellwether. It helped power the market profit last year.

“Look at Apple because it’s a little bit of everything. Apple is growth, technology, sales. If anything is doing well, it should be Apple,” Redler said.

Some important data in the coming week, including February sales and business output, both Tuesday. There is also a $ 24 billion 20-year Finance note auction Tuesday.

The biggest catalyst for the link market is the Fed.

The bond market has been discussing something the Fed will not talk about after its meeting on Wednesday afternoon. In one of his moves to dig up the economy at the time of the pandemic, the Fed allowed banks to hold Treasury bonds without counting them against the bank’s bare ratio. This strategy allowed institutions more flexibility to use their balance sheet for activities such as lending.

The program ends on March 31.

“This is basically a big issue because you have so much Financial supply coming and going [the rule] basically making it very punitive for banks to own Treasurysys, “said Peters of PGIM.

“The markets are kind of divided on what’s going to happen,” he said. “I think most experts think that expansion is the right path. You haven’t heard anything from the Fed on the issue.”

Peters expects the Treasury market to remain volatile.

“I think you’ll see more volatility in a high-pressure growth economy with very large deficits and Fed accommodation,” he said. “I think you see those fragile movements.”

Monday

8:30 am Empire State manufacturing

4:00 pm Treasury International Capital Data

Tuesday

Earnings: Volkswagen, Brands Designers, Jabil, Lennar, Coupa Software, CrowdStrike

The Federal Open Markets Committee will begin a two-day meeting

8:30 am Sale sale

8:30 am Import prices

8:30 am Business leaders survey

9:15 am Industrial product

10:00 am Industrial materials

10:00 am National Home Builders Association Survey

Wednesday

Earnings: Cintas, Lands’ End, Five Below, Herman Miller, American Outdoor Brands

8:30 am Housing will begin

2:00 pm Aithris Fed

2:30 pm Chairman Jerome Powell’s briefing

Thursday

Earnings: FedEx, Standard Dollar, Nike, Petco, Accenture, Commercial Metals, Signet Jewelry

8:30 am Original submissions

10:00 am Philadelphia Fed Inspection