Kim Hyun-seok’s Wall Street Now collapsing technology stock… The great divide

Interest rate movements still dominate the New York financial markets.

The 10-year U.S. Treasury bond yield surged to 1.62% per year on the February employment index (an increase of 379,000 jobs), far exceeding expectations on Friday morning on the 5th (local time), and then stabilized with the inflow of low-priced purchases. . Thanks to this, the New York Stock Exchange on Friday was also good.

However, when the regular-book bidding in the New York bond market began at 4 am on the 8th, it jumped to 1.617% in an instant. The passage of the stimulus bill in the Senate on the 6th has an impact. This is due to rising expectations of economic recovery as well as inflation concerns with the expectation that $1.9 trillion will be released. In addition, the news that oil facilities in Saudi Arabia had been attacked raised concerns about prices that Brent oil once exceeded $71 per barrel. As interest rates rose, the NASDAQ 100 futures plunged to the 2% level.

The Dow and S&P 500 went up as interest rates fell back to the high 1.5% level before opening, and only the Nasdaq started with a slight decline. But as time passed, the Dow soared and the Nasdaq fell further. Economically sensitive stocks and value stocks such as banks, industries, materials, and energy surged, while growth stocks such as technology stocks deepened. The’reflation trade’ (investing in beneficiary stocks in anticipation of economic recovery and inflation) has reached its peak. There was even the word’the great divide’ over these mixed movements.

On this day, GE (+4.19%), Disney (+6.27%), American Airline (+4.99%) and Goldman Sachs (2.08%) updated their 52-week reported price. These stocks are both traditional value stocks and are considered beneficiaries of economic resumption. Disney stock prices skyrocketed as California allowed limited theme parks to reopen in April.

On the other hand, not only high-value technology stocks such as Tesla (-5.84%), Zoom (-7.85%), Shopify (-5.18%), Nio (-7.61%), and Peloton (-3.60%), but also Apple (-4.17%) and Netflix. (-4.47%), Alphabet (-4.27%), etc. All technology stocks collapsed, including Megatech.

In the end, the Dow was up 306.14 points, up 0.97%. It soared more than 650 points during the intraday and set a record high. On the other hand, the S&P 500 fell 0.54% and the Nasdaq plunged 2.41%. The NASDAQ 100 index fell more than 10% from its high and entered a correctional market. It fell 4% this year.

The biden government’s stimulus plan is scheduled to be implemented this month. Households with two children can get up to $5600. JPMorgan analyzes that every time the government executes $1 trillion, the earnings per share (EPS) of S&P 500 companies increases by $4-5. In terms of EPS, there is 6-7% more upside potential for the stock price.

News of stimulus measures (recovery + inflation), as well as good vaccine news, had an impact. In the United States, the number of inoculations per day is approaching 3 million. 60 million people have already been vaccinated, and Goldman Sachs predicted that they could enter the mass immunization stage as early as three months. The Centers for Disease Control and Prevention (CDC) issued a guideline on that day that vaccinations do not need to wear a mask when doing indoor consumption.

Goldman Sachs predicts that the unemployment rate will drop to 4.1% this year as a result of a job boom in the United States. Economist Joe Briggs predicts that economic resumption, fiscal stimulus, and repressed savings will lead to strong demand, leading to an employment boom. In particular, he analyzed that the unemployment rate may fall to the mid-3%. It is expected that it will return to the 3.5% level in February 2020, just before the pandemic occurs.

Finance Minister Janet Yellen told MSNBC that “I don’t think the stimulus will cause problematic inflation or high interest rates.” He also said the stimulus will be a “very powerful” fuel for the recovery of the US economy, and he expects the US economy to return to full employment next year.

All of this created the’Great Divide’ on this day.

CNBC’s Mike Santoli, stock critic, summoned a’mystery broker’. His mystery broker has been predicting the stock market undisclosed for 10 years. Santoli occasionally tweets his comments. He warned of a decline at the end of last year that the tech stock bubble reached the dot-com bubble level. In anticipation of a rotation of value stocks on January 4th this year, he strongly recommended buying bank stocks instead of technology stocks.

The mystery broker said on the day that “the technology stock bubble is officially exploding. The correction is not general, but limited to speculative tech stocks. There will be a good rebound in tech stocks, but I don’t see a solid bottom until early fall.” “I love value stocks and small stocks, and I love them now. This deal is not over and could be going on for years to come.” “The reason the market is going back and forth is because of the strong rotation (growth → value stock) and it’s not an overall adjustment,” he explained.

Market movements are now linked to interest rates. It is natural that interest rates rise when the economy improves, but the speed at which 10-year bond yields, which were less than 1% per year at the beginning of this year, surged in the short term is a problem. You don’t know how far it will go up, and it can shake up stock valuations.

So this week, investors are watching the release of the Consumer Price Index (CPI) for February 10, which could affect interest rates, and government bond bids starting on the 9th. In particular, interest rates may fluctuate again if bids for 10-year Treasury bonds on the 10th are as low as last week’s 7-year bond.

I also called my’mystery broker’. He works as a bond trader on Wall Street. I summarized the Q&A with him.

Q. How far are interest rates likely to rise rapidly?

A. Up to 1.6% has been drilled, and there seems to be a slight overshoot (a surge due to temporary overheating). On the 5th, a deep buying (low price purchase) came in at 1.6%. It may be 10~20bp (1bp = 0.01% point), but it is difficult to increase more in the short term. For the time being, it is expected to move in the range of 1.3 to 1.8%.

Q. What is the reason for seeing it that way?

A. It seems that the government bond market has already reflected economic resumption from vaccination, economic indicators to improve, $1.9 trillion in stimulus measures, and subsequent infrastructure deals. That is why interest rates have skyrocketed. Something new information or news is needed for these interest rates to rise further.

Q. The bidding of government bonds such as 10-year bonds continues this week, but is it not that demand has not been able to comply with the 7-year bond last week?

A. 7-year bonds are originally unpopular and are in low demand. Treasury bond benchmark goes like this for 2, 3, 5, 10, 30 years. A 10-year bidding is important on the 10th, but it is a little uneasy that high demand will come from 1.6% (although there was a deep buying last week) as interest rates are likely to rise further under the current atmosphere. It is too early for Japanese financial companies, which are set to settle at the end of March. You have to watch closely.

Q. How do you expect the results of the March Federal Open Market Committee (FOMC) to be held on the 16th-17th?

A. In this market situation, we will not take any action in March. Jerome Powell said last week,’It’s not appropriate to look at one particular interest rate or price alone. We are monitoring the overall financial market conditions.’ The current Goldman Sachs financial condition index is still good. What the FOMC can do is just raise the excess reserve interest rate (IOER) for banks’ excess reserves.

Q. Wouldn’t raising the excess reserve interest rate (IOER) be interpreted as a precursor to an interest rate hike?

A. There is currently too much money in the short-term fund market. Banks also have a lot of money in the money accumulated by companies and individuals. So in the money market, short-term interest rates have dropped to negative. This is beyond the 0.0~0.25% benchmark interest rate set by the Fed. To correct this, the IOER, which is currently 0.10%, can be increased to 0.15%. This could boost short-term interest rates as banks attract more money to the Fed. However, the Fed will explain that it is a technical measure and has nothing to do with austerity in order to prevent misunderstanding of the market.

Q. FOMC in March will not be much fun.

A. No. An economic forecast and a dot plot of the future interest rates of the committee members come out. This will be the most important thing.

Q. Will the future interest rate forecast of the committee members rise a lot in the dot plot?

A. It will increase, but if it is not excessive, there may be no significant impact on the market. There are already bets on the market that expect the first rate hike in 2022. If the committee members see interest rates rising faster than that, it will be a big variable, but not so.

Q. Some markets want the Fed to introduce new policies such as yield curve control (YCC).

A. We believe the Fed is unlikely to adopt YCC. YCC is basically fixing interest rates in one place. No matter what, you have to keep that rate. That puts a huge burden on the Fed. Rather, it is still up to the Fed’s discretion to determine which bonds to buy and how much for Operation Twist (OT). You can be flexible.
OT will also do it if there is a financial market turmoil, such as the stock market plunging by 20% and interest rates soaring at this rate.

Q. It is said that prices will increase from March, but how much will it increase? Isn’t the interest rate unstable again?

-From March, prices will rise due to the base effect of last year’s economic blockade, but they are seeing the 2% range. It is likely to rise to the second half of the 2%, but there is a 3% possibility, but not 4% at all. Also, the current Wall Street consensus is that it is difficult for such inflation to continue in the long term.
The February Consumer Price Index (CPI), which comes out on the 10th, will still come out at the 1% level (January rose 1.4% from the previous year).

Reporter Kim Hyun-seok [email protected]