Financial News on March 27: The stock market may be hit by quarter-end trading in the coming week as pension funds and other large investors buy bonds and sell stocks to rebalance their portfolios. A sharp rise in bond yields this quarter prompted fund managers to shift holdings to make up for shortfalls in bond holdings.
The focus in the coming week is likely to turn to the overall economy, with the March jobs report expected on Friday and the White House's infrastructure plan on Wednesday. The Institute for Supply Management (ISM) will also release manufacturing data on Thursday.
htmlThe March jobs report will be announced when markets are closed for the Good Friday holiday, but bond trading will be open for half a day and end at noon. Economists expect 630,000 new jobs to be created in March, with the unemployment rate falling to 6% from 6.2%, according to Dow Jones data.U.S. President Joe Biden is expected to unveil details of his $3 trillion to $4 trillion infrastructure plan in Pittsburgh on Wednesday. But strategists say it's too early to say what form the plan will take or how big it will ultimately be.
Stocks have moved higher over the past week, while Treasury yields have been less volatile. The closely watched 10-year Treasury note was at 1.67% on Friday, down from 1.75% the previous week. Yields move inversely to prices, and strategists expect rates to continue falling in the coming week as investors rebalance their holdings.
Peter Boockvar, chief investment strategist at Bleakley Advisory Group, said: "This is the last week of the quarter, so there may be a lot of rumors related to this. Obviously, we will keep a close eye on bonds, and the 10-year Treasury bond currently appears to be at 1.60% to 1.70 % range. People may just be trying to find their footing here, and they’re working on that, too.”
Some strategists said the end-of-quarter trading could end up being good for stocks, especially big tech stocks, now that interest rates have paused. Go higher. Stocks are higher so far this quarter, with the S&P 500 up 1.6% this week and 5.8% so far in the quarter; the Dow is up 1.4% this week and up 8% so far in the first quarter; the Nasdaq has been lagging, rising this week It fell 0.6% but rose 1.9% for the quarter.
The bond market has seen far more dramatic moves this quarter, with the 10-year benchmark yield rising from 0.93% at the end of last year. Blake Gwinn of NatWest in the UK said of the 10-year yield: “It dominates now. The 10-year is the most watched yield because of its impact on mortgages and Other key funding rates."
Gwinn, head of U.S. rates strategy, said he changed his view on the 10-year Treasury note. He now expects the 10-year Treasury yield to rise from 1.75% to 2% by the end of the year. But he said Treasury yields could continue to fall in the short term as large funds buy Treasuries. Japanese investors are also expected to become active buyers around Wednesday. If anything, really hoping it continues to push yields lower, giving us a better chance of shorting again.
Infrastructure Plan
Gwinn said he is concerned about Biden's infrastructure plan and does not believe it has been priced in by the market. The president's just-signed $1.9 trillion fiscal plan is a driver of bond yields and investors are weighing it The expected boost in economic activity and the higher debt levels it will bring, he said: “To me, the Biden plan is the biggest risk in the U.S. Treasury market right now. I don't know what's going to happen with Biden's full package this year. If, all of a sudden, we start moving quickly on this and that starts happening in the second quarter, I'm going to have to reconsider the 2% target.
Gwinn said there is already "fiscal fatigue" in the market. There is still a lot of doubt and uncertainty about how, when and if the bill will be passed... It's not concrete enough. The plan is expected to last for many years, Democrats are expected to seek tax increases to pay for them.
Market rotation
The trend among investors into cyclical and value stocks is expected to continue into the next quarter, with energy and financial stocks performing the best so far in the first quarter. , up approximately 33% and 16.5% respectively.Technology stocks rose 1.7% but outperformed utilities and consumer staples stocks.
Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors, said: "I think there is a lot of upside in certain parts of the market, but some of that upside may be at the expense of growth stocks." He also expects growth stocks to It continues to react negatively to rising rates and positively to falling rates, but this trade has decoupled somewhat over the past week. "I think the fundamentals behind this are real," he said. "If you think interest rates are going to hit 2% by the end of the year, that's really bad for those expensive high-growth businesses. The market cares less about the absolute level and more about the absolute level Direction. The higher interest rates are, the worse things are for high-multiple stocks."
Suzuki said rising interest rates are hitting some market bubbles. According to data from a finance professor at the University of Florida, stocks of special purpose acquisition companies rose sharply on their first day of listing in February, with an average increase of more than 5%, but did not rise in March.
He said: "When we see the economy getting better and better at an incredible rate, especially when you add in stimulus, you're going to see the companies that will benefit the most from the acceleration of the economy, they're going to grow Two times, more than three times. To their credit, those growth stocks with high multiples were very resilient last year... Tech stocks will see earnings growth of about 15% next year, but the more cyclical sectors of the economy - energy, Materials, industrials, small caps, they're going to have much stronger earnings growth this year as the economy recovers
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