Citizens are passing in front of the NASDAQ building in Manhattan, New York, USA on the 11th. New York = Correspondent Jae-Gil Cho
In the US NASDAQ market, where more than 3,300 technology companies are listed, the composite index has fallen 5.5% over the past month. It was the opposite of the Dow and S&P 500 Indexes, which are improving with the economic recovery. It has been about five years since April 2016 that the Dow has beaten the NASDAQ for four consecutive weeks.
Nasdaq has brought huge returns to global investors. In the 10 years from 2011 to last year, the index fell only twice (-1.8% in 2011 and -3.88% in 2018).
The remaining 8 years jumped from at least 5.73% (2015) to a maximum of 43.64% (last year). In particular, after an increase of 35.23% in 2019, the increase was further increased last year. Technologists received great attention as the digital economy spread rapidly amid the coronavirus outbreak.
The reason why the mood has changed rapidly this year is due to the movement of the US Treasury. The rise in government bond yields along with the prospect of an early recovery in the economy hurt technology stocks, who have benefited the most from low interest rates. However, as the influence of technology companies is increasing, some voices are questioning whether the equation of’increase in interest rates = decline in technology stocks’ will always be established.
Cash Wood CEO, who manages the ARC Listing Index Fund (ETF), also emphasized that “weak technology stocks are a good opportunity to buy.”
Again this week, long-term U.S. Treasury bond yields are expected to be the stock market’s biggest concern. Several economic indicators and vaccine distribution are predicting an economic recovery and rising inflation.
The cash aid from the stimulus package ($1.9 trillion) started being paid to American families this past weekend. The US media reports that 85% of the target households (158.5 million households) will receive a deposit of $1,400 per person within this week. It is clear that the US consumption indicators will improve further.
Investing.com analyst Harris Anwar said, “Among the individual stocks, it is worth paying attention to the movement of the Tesla share, which announced that it has started to improve facilities at its factory in Shanghai, China, and Nike and FedEx, which are showing results this week.”
Here are some schedules and events worth referring to during the week.
-FOMC statement and briefing by Fed Chairman Jerome Powell (17th)
-US Treasury Bond Bid (16th) and Treasury Bond Interest Rate Trend
-Non-consumption indicators such as retail sales in February (16th)
-Results of the biden government’s first high-level US-China talks (18th)
– Nike·FedEx, etc.’s earnings for the previous quarter are disclosed (18th)
▶First, please let me know the situation of the New York Stock Market last week, which ended early on Saturday morning Korean time.
On the last day of last week, the Dow rose 0.9% and the S&P 500 rose 0.1%. However, the NASDAQ index closed down 0.59%. The Dow and S&P 500 broke all-time highs.
The surge in long-term U.S. Treasury bond interest rates at the same time divided the economic cycle and technology week. The 10-year maturity rate, which is used as a benchmark, is 1.64% per annum on the day, a 10bp (1bp=0.01% point) jump from the previous day. 20-year bonds surged 13bp and 30-year bonds surged 11bp.
The US Dow index soared 4.1% last week alone on the back of a strong economic recovery.
Treasury bond yields have risen a lot because concerns over inflation have risen again. U.S. President Joe Biden signed a $1.9 trillion stimulus law the day before, saying that starting in early May, all the public will be vaccinated. Massive fiscal inputs and an earlier vaccination schedule are factors driving inflation while accelerating the economic recovery.
The rise in government bond yields reflects anxiety that the US central bank (Fed) will tighten (early taper and raise the base rate) sooner than expected if inflation is overheated.
The rise in government bond yields is a huge burden for large tech stocks that have intensively benefited from low interest rates. On the other hand, financial stocks, industrial stocks, energy stocks, and other cyclical stocks can benefit.
▶ This week, we must also closely watch the trend of government bond yields.
The biggest factor influencing the stock market in recent years is the movement of government bond yields. We must watch the Federal Open Markets Commission (FOMC) statement scheduled for the 17th and the remarks of Fed Chair Jerome Powell. This is because there is a high possibility that there will be a mention related to Treasury bond rates.
The FOMC is held eight times a year, and this month, it is held from the 16th to the 17th and a statement is released at 2pm on the last day. Chairman Powell will have a video briefing immediately after that, starting at 2:30.
U.S. Treasury yields are booming, but are gradually rising. The graph shows the yield of 10-year government bonds. Trading Economics Offer
At a public event on the 4th of this month, Chairman Powell said, “The increase in government bond yields is eye-catching”, but shocked the market by saying, “Inflation may appear, but I will be patient”. He made it clear that he would not engage in artificial market intervention.
However, it is evaluated that the market atmosphere has changed since then. This is because rising government bond yields not only put a strain on the stock market, but can also adversely affect the economic recovery. In particular, interest rates on 10-year government bonds are linked to corporate and household loans, which can raise concerns about debt pressure in the event of a short-term surge.
The Fed’s market intervention measures include controlling the yield curve (YCC, unlimited purchase of long-term government bonds exceeding the target interest rate), operation twist (OT, selling short-term bonds and buying long-term bonds), and banknote SLR (complementary leverage ratio). It is possible to extend mitigation measures, etc.
While observations dominate that the Fed will not take any action, it is difficult to completely rule out the possibility of an extension of bank deregulation, which ends later this month.
Jerome Powell, Chairman of the US Fed. His mouth is expected to receive great attention this week as well.
If the Fed, which has eased banking capital regulations since last year’s coronavirus outbreak, extends the measure, large banks will not have to sell their government bonds to meet capital regulations. Conversely, if banknotes start selling government bonds starting next month, bond prices may fall and interest rates may rise.
Some analysts have experienced several bond tantrums since last month, and some analyzes that the stock market’s resistance to rising Treasury yields has grown more than in the past.
The dot plot from the Fed is also noteworthy. The dot plot is an indicator of the interest rate forecast of the FOMC members (12 members). The dotplot for January this year predicted that most of the commissioners will maintain interest rates at zero levels by 2023. We have to see what will change here.
A dot plot of the US Federal Open Market Committee (FOMC) members’ benchmark interest rate forecasts. As of the end of last year, it is expected that the current zero-level interest rates will generally be maintained through 2023. Provided by Charles Schwab
Gregory Peters, head of PGIM bond strategy, predicts, “The market has too much expectations for what the Fed will do.” “But the Fed will send a consistent message as it used to be.”
It is expected that Powell’s regular briefing, which will be held shortly after the FOMC, will not send a different message than before.
▶Last week, the US government bond bidding was in progress, attracting great interest.
On the 16th (Tue), a bid for 20-year Treasury bonds is scheduled. That’s a total of 24 billion dollars. If demand from institutional investors is sluggish, we cannot rule out the possibility that the overall interest rate will rise again.
However, all government bonds worth 120 billion dollars, which were held last week, were successfully completed. The bid rate was slightly below the previous average, but it was generally good. It is an analysis that the number of institutions that want to invest in government bonds has increased again if the interest rate of government bonds has jumped sharply in recent years.
Concerns about inflation are heightening along with the US economic recovery. The US inflation rate rose 1.7% last month (compared to the same period last year). Trading Economics Offer
Earlier, the Ministry of Finance issued a 7-year government bond worth $62 billion on the 25th of last month, and the average bid rate was 2.04 times, hitting a record low. When institutional demand was confirmed to be sluggish, most bond prices fell and interest rates skyrocketed.
▶What economic indicators are worth noting this week?
It is worth watching the US retail sales trend on the 16th (as of February). A good indicator of consumption will strengthen confidence in the economic recovery, but at the same time raise inflation concerns. Experts predict that delivery retail sales surged by 5.3% and decreased by 0.1% last month.
Retail sales in the US rebounded 5.3% (compared to the previous month) in January this year. Trading Economics Offer
US-China relations must also be observed. The two countries will hold their first high-level face-to-face talks on the 18th following the inauguration of President Joe Biden. As a result of this meeting, if the stance of continuing strong pressure on Chinese technology companies becomes more prominent, it is likely to be a burden on Nasdaq technology stocks.
<이번주 공개되는 경제 지표 및 일정>
-15th (Mon) Empire State Manufacturing Index (March)
-16th (Tue) US Treasury Department bond bidding (24 billion dollars) / Retail sales (February) / Industrial production (February) / Import prices (February)
-17th (Wed) FOMC statement (2 p.m.) and briefing by Jerome Powell Fed chairman (2:30 p.m.) / New housing start and number of permits (February)
-18th (Thu) New Weekly Unemployment Claims / Philadelphia Annual Manufacturing Index (March)
▶ The major companies that are releasing their results this week are.
Among the companies releasing the results of the previous quarter, it is worth noting Nike and FedEx. Nike can benefit from the economic recovery period, and FedEx is the world’s number one consignment company with growing sales due to the expansion of the digital economy. Both are announced after the market close on the 18th, and the earnings per share (EPS) outlook is good.
What’s more, with the implementation of the $1.9 trillion stimulus package, each American can get $1,400 in cash. Consumer-related stocks may get more attention.
In an interview with CNBC, a partner of investment firm T2 Live, Scott Ledler said, “Recently, it was difficult to make money by investing in technology stocks such as Apple, Facebook, and Tesla, but Visa, GM, Ford, Macy’s, and 3M have compensated.” “This week, Mr. Powell’s remarks will be a decisive factor for the market.”
<이번주에 실적을 공개하는 주요 기업>
-16th (Tue) Volkswagen, Fuel Cell Energy
-17th (Wed) Herman Miller
-18th (Thursday) FedEx, Nike, Accenture, Weibo, Dollar General, Petco
New York = Correspondent Jae-Gil Cho [email protected]