Kim Hyun-seok’s Wall Street Now Technician Resurrection VS Dead cat bounce

Recently, investors in New York’s financial markets are looking only at interest rates. The same was the case on the 9th (local time).

The 10-year U.S. Treasury Bond yield, which ended at 1.594% per year on the regular market the day before, has been moving little by little from the evening of the previous day. It fell to the 1.56% level at 9 pm on the 8th, and the 1.53% level at the dawn of the 9th.

Ahead of the three days of important government bond bidding, which will begin on the 9th, yields have been stable (though we don’t know how long they will last).

A Wall Street official said, “The 10-year yield has exceeded 1.6% a year several times this month, but it has not been able to keep that level and fell back to the 1.5% range, indicating that there is some demand at the rate of 1.6%.”

When interest rates stabilized, the New York Stock Market came alive. In particular, Nasdaq and technology stocks, which fell sharply due to rising interest rates, have revived.

The Nasdaq, which started with a 2% rise, sharpened as time passed. Tesla, which started trading in the 7-8% range, surpassed 10%. The Dow and S&P 500 index also rose, but it was only around 1%. As technology stocks revived, the rise of economically sensitive and value stocks was relatively modest. Financial (bank) and energy stocks, which have been the core of the reflation trade, have been weak.

As the uphill approached 1:00 PM, he faltered. And interest rates wriggled again. At 12:58 pm, the 10-year yield rose to 1.558%. It was just before the U.S. Treasury Department’s 3-year Treasury tender was initiated. At 1:00 PM, the rumors came to investors waiting for the results.

The result of a three-year bid worth $58 billion was successful. The issue rate was decided at 0.355%, which was 0.4bp (1bp=0.01% point) lower than the 0.359% immediately before issuance. The bid rate was 2.689 times. It’s much higher than 2.391 times last month’s bidding, and it’s the highest since June 2018. (Recall that the bid rate for the 7-year bidding, which triggered a surge in interest rates on the 25th of last month, was 2.045 times)

Indirect demand, representing demand from overseas investors, was 47.8%, a slight decrease from 52.7% last month, but there was no significant difference.

As the bid results became known, the stock market bounced momentarily. And interest rates fell back to 1.533% per year. And by 2pm, the NASDAQ soared 4.3%.

However, with the release of profit-taking at the last minute, the Dow rose 0.1%, the S&P 500 rose 1.42%, and the Nasdaq index ended with a 3.69% increase. Nasdaq’s increase rate on this day is the highest in four months since last November.

In particular, Tesla surged 19.64%, increasing its market capitalization by $106.1 billion a day. That’s twice the total market cap of Ford. In addition, high-value technology stocks, such as Square 11.50%, Peloton 14.47%, Zoom 10.03%, Fuel Cell Energy 20.68%, Nio 17.44%, also showed a sharp rise.

In addition, large technology stocks such as Apple 4.06%, Amazon 3.76%, Facebook 4.09%, etc. all showed a sharp rise.

It is analyzed that the success factor of the 3-year Treasury Bond bidding on this day was caused by the rising interest rate that generated investment demand, the enormous liquidity concentrated in the short-term fund market, and the short-term supply of short-term bonds.

As the Treasury Department reduced cash deposits in the US Central Bank (Fed) account (TGA), which is worth $1.6 trillion, interest rates have fallen to negative in the recent short-term fund market, the redemption conditional bond (repo) market. It is true that the person who borrows money with the original bond as collateral pays interest, but now it is rather the interest. That’s what happened because there was plenty of money.

The US Treasury Department is also reducing short-term bond issuance and expanding long-term bonds. That is why the supply of short-term bonds has recently been short.

The problem is a 10-year bidding that will take place on the 10th. A Wall Street official said, “There are talks that the demand for 10-year products is also significant.” Currently, the interest rate of borrowing funds with 10-year bonds as collateral in the repo market recorded negative -3.32% on this day. In other words, this also means that the borrower receives interest. That’s why there is a lot of demand for 10-year products.

The question is, what demand is this? A Wall Street official said, “We believe that this is because there is a lot of demand for short selling in anticipation of an increase in 10-year interest rates (decrease in bond prices).” This means that there are many investors who borrow 10-year Treasury bonds and sell them shortly. If such demand is high, even if this bid is successful, the next 10-year interest rate may rise further.

A Wall Street official said, “We still have anticipation that interest rates will continue to rise with the economic recovery in the future. We can stay at 1.5~1.6% for the time being, but we can go up again.”

In the US, economic growth is expected to soar to 6-10% this year due to the resumption of economic activities and passage of enormous stimulus measures for vaccine supply. On that day, Morgan Stanley raised the previous estimate of the US’s gross domestic product (GDP) in 2021 by 0.5 percentage points from 7.6% to 8.1%. Bloomberg reports that the gap between 10-year interest rates and US economic growth projections has widened to an unusual level, which could further weaken the Treasury market. “We expect prices to exceed 3% over the next few months this summer,” said Jeffrey Gundlock, a renowned bond investor that day. It may be unreasonable to hope that interest rates continue to stabilize at this level.

However, another Wall Street official said, “As interest rates have risen rapidly, we expect to stay below the 1.75% level in the short term,” and “Japanese investors will come back next month.”

If so, what will happen to the tech stock? Should we buy low-priced tech stocks that have fallen a lot? Tesla rose 19% that day, but it’s still down 20% from last month. The zoom is also down by 20%, and the peloton is 36% lower. Apple also fell by about 10%.

The day before, Akinvest’s Chief Executive Officer Kathy Wood said in an interview with Bloomberg, “The bull market is expanding into value stocks or business cycle stocks. In the long run, it will be very good news for our strategy. We are looking for good buying opportunities when we sell this technology stock. “There is.”

On Wall Street, there is an analysis that the valuation has declined due to a short-term plunge in technology stocks. It is said that Apple Alphabet Facebook, which has exceeded 30 times the stock price-to-earnings ratio (PER), has come down to the mid-20s level. However, it is higher than the market average (22 times). BNP Paribas chief strategist Daniel Morris said in an interview with the Wall Street Journal (WSJ), “It’s not that the long-term view of tech stocks has changed. Everyone sees tech stocks going well. It’s just too expensive.” Said.

Black Rock’s Russ Costerich portfolio manager appeared on CNBC that day and said, “Some of the technology stocks such as semiconductors are economically sensitive stocks,” and “We are buying from the perspective of benefiting from the economic recovery.”

However, there are many views that interpret the rebound in technology stocks on this day as a’deathcat bounce’ (a dead cat wriggled after death) during the overall decline. CNBC’s Mike Santoli said: “Tech stocks are still weak stocks, and it’s common for some short-term oversolds during the downturn, resulting in a big rebound.” He pointed out that there have been six cases where the Nasdaq rebounded more than 2% (above the 200-day moving average line), with the NASDAQ falling more than 10% from its all-time high, three of which were at the time of the dotcom bubble collapse in 2000.

Reporter Kim Hyun-seok [email protected]