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.
The impact of Biden’s proposed infrastructure spending plan is also net-negative for equities.
The recovery in growth stocks over the past three weeks followed lower bond yields based on technical flows (CTA positioning), worsening global coronavirus trends (India and Turkey) and a slow European vaccine rollout.
The S&P 500 (SPX) appears to be in consolidation mode after four straight weeks of gains totaling nearly 8%. The two prior pullbacks (~4% in late Feb and ~2% in mid-March) were preceded by 3 sessions of price trend deceleration that wasn’t immediately apparent this
The fundamental justification behind the recent pullback in bond yields must be rooted in concerns around the sustainability of the global recovery. Europe’s slow vaccine rollout and associated restrictions are probably the main cause.
Ten-year Treasury yields declined by 11bps at one point yesterday (closed 6bps lower), despite much stronger-than-expected US data. Short-covering is the most logical explanation after foreign investors sold
Ten-year Treasury yields are extending below first technical support in the 1.62%-1.64% range. Closing levels are far more important, but an intraday yield of ~1.54% has us anticipating a test of strong secondary support at ~1.45%.
