Covid-related drags should continue to fade in the weeks ahead, which will likely drive yields gently higher with curve steepening. Equity markets should begin to embrace a more durable cyclical recovery, which will benefit the most cyclically-sensitive groups like Financials, Materials and Energy.
The Covid situation should continue to improve and extend the cyclical recovery. Btw, Friday’s interim study results on MRK’s oral anti-viral treatment (5-day regimen) looks like a significant step in reducing the impact of Covid.
Once the debt ceiling issue is resolved, we’d expect nominal bond yields to resume their recent back up with gentle curve steepening. The recent rise in break even yields reflect concerns that inflation is likely to be more persistent.
Today’s strong relief rally in Tech and Communication Services is a welcome development given their respective sector weightings within the major indices.
September global manufacturing PMI ticked up last week after 4 months of lower numbers. May was the peak in global manufacturing PMI at 56, with last week’s data coming in at 54.10.
The S&P 500 (SPX) continues to work through a seasonably bearish month. Visible risks, including a China slowdown, Washington issues and negative earnings preannouncements (bottleneck pressures), have lined up with technical sell signals at the end of August.
The S&P 500 has been holding up relatively well in the only historically bearish month of the year after price trend deceleration in late August signaled moderate downside. At the moment, the SPX is down ~4.7% from it’s 9/2 peak, which remains inline with other
Cyclical/value sector leadership still depends on bond yields moving higher. US Treasury yields hammered out cycle lows in late-July/early-August with the 10-year yields making a double bottom after failing to break through pattern support at ~1.12%.
The August Jobs Report capped off a series of mostly disappointing data including decent-sized downticks in August consumer confidence readings and a retail sales miss.
The summer slump in growth data was largely attributed to delta variant concerns, but the outbreak has recently shown signs of peaking and looks likely to now trace past Covid waves.
