The next catalyst for bond yields will be the release of US and Eurozone flash May PMIs this Friday. The number will be an important input for bond yields and equity sector performance, but better than expected PMI probably won’t be enough to lift US
Stay focused on value sectors (Financials, Materials and Energy), small-cap indices like the Russell 2000 (RTY) and value stocks within retail.
Some of today’s big upside CPI print can be attributed to base effects, meaning the magnitude will likely prove transitory, but pricing pressures look like they’ll persist. The index for used cars and trucks increased 10.0% during the month (biggest monthly increase since the series
We’re seeing supply constraints because demand is so strong with the next major data point due this Friday with the release of April US retail sales. The latest news outside the US showed a significant pickup in growth throughout Europe during March and April.
Bond yields are lower this morning, but the value trade continues to outperform as attention stays on improving PMI data. Tomorrow’s release of April services PMI will likely be an important input. Consensus is looking for Eurozone services PMI to come in at 50.3 and
Over 50% of S&P companies have now reported Q1 results with improved metrics driving the 2022 consensus SPX EPS estimate toward ~$215. At current levels, this implies a forward multiple of ~19.5x.
Powell pushed back on expectations for QE tapering during the press conference, saying it’s not yet appropriate to “think about thinking about” reduced asset purchases. He reiterated expectations for higher inflation this year to be ‘transitory’ and below the threshold for tighter policy.
Our preference to add cyclical/value equity exposure over growth exposure started in mid-September when real yields made a long-term secular low and began inching higher. Policy stimulus, consumer balance sheet strength and pent-up demand into a vaccine-induced reopening were the apparent fundamental drivers.
The recent consolidation in bond yields is a mean reversion trade after prices became deeply oversold in mid-March. The consolidation allowed high multiple stocks to regain their footing after three weeks of rerating. Ten-year yields pulled back ~21bps over the last 3 weeks and the
The recent consolidation in bond yields has been mostly driven by technical flows from private pension plans and some systematic funds. An estimated 97% of private pension plans have reached funded status, largely due to a strong equity market.
