US stock growth stocks have rebounded strongly recently, and the 10-year US bond yield has also fallen below 3%, which is considered a signal that the Fed hawks have peaked.
Recent market bets on federal funds futures show that may re- cut rates sometime next year , and the market began to speculate that the Fed's most hawkish moment has passed, and reprice the prospects of the recession.
On Wednesday, Tom Essaye, founder of Sevens Report Research, said in a report:
growth stocks have performed significantly better than value stocks in the recent past. Although it is too early to think that "value stocks may not rebound sharply", we do believe that growth stocks have recently outperformed the market (the rebound trend) and are worthy of investors' attention.
If growth stocks continue to rebound, this will be a strong signal, indicating that market expectations are shifting from the rate hike that has been going on to the Fed's final rate cut in 2023, which also means that the market estimates that the Fed's "hawkish" posture may have peaked at this moment.
market is worried about economic recession, and long-term U.S. Treasury yields continue to fall
As U.S. inflation is at its highest level in more than 40 years, the cost of living for Americans has remained high. The Federal Reserve strongly "turned the eagle" in March this year and raised the benchmark interest rate for the first time since 2018.
Since then, the Fed has become harder, which has also caused markets to worry that the Fed may be too radical in controlling out-of-control inflation, which may lead to a recession.
But now, the slowdown in U.S. economic growth has caused the market to question how long its aggressive monetary tightening policy can last, although the Fed only started hikes this year.
As US Treasury yields continue to fall recently, some analysts said that if inflation peaks in the second half of this year, the Fed may relax its previous hawkish stance.
It is worth mentioning that compared with value stocks, the decline in US Treasury yields seems to have a more obvious boost to growth stocks. Overnight, growth technology stocks generally rose. Tom Graff, head of investment at
Long-term U.S. Treasury yields have been falling recently because investors are worried that U.S. economy is slowing down and there is a high possibility of a recession.
In June this year, the 10-year U.S. Treasury yield rose to a high of about 3.5%, but fell to 2.748% this week, the lowest level since May 27.
In contrast, the 10-year U.S. Treasury yield at the end of 2021 was about 1.5%, when the market expected the Fed to raise the benchmark interest rate to curb the "high fever and non-regressive" inflation level.
In addition, the 10-year and 2-year U.S. Treasury yields briefly reversed on July 5, for the first time since mid-June, again showing that the United States may face a recession.
It is worth noting that the spread of corporate bonds has widened as investors' concerns about the recession intensified. In Graff's view, the corporate bond market has been flashing concerns about recession, saying: The spread of investment-grade corporate bonds has not been seen at any time except for the economic recession in the past 25 years. While this does not mean a 100% chance of an economic contraction, it is absolutely clear that credit markets believe there are risks. The interest rate spread between high-yield bonds or junk bonds and U.S. bonds also rose similarly.
DataTrek Research co-founder Nicholas Colas also said in a latest report:
Although the 10-year U.S. Treasury yield peaked three weeks ago, the spread of corporate bonds continues to rise. Rate spreads tend to rise when the market becomes increasingly uncertain about future corporate cash flows, which is the case most of this year.
The decline in U.S. Treasury yields boosted U.S. growth stocks higher
markets worry that the slowdown will cause cash flow to dry up, as it may be detrimental to companies reinvest their businesses or make cash-strapped borrowers more difficult.
US stocks have been falling this year, after valuations have been repriced as interest rate rises, especially growth technology stocks have fallen sharply this year.
, which is mainly tech stocks, , Nasdaq index , plummeted nearly 30% in the first half of this year, and , S&P 500 index also fell by more than 20%, falling into the technical bear market .
Growth stocks are particularly sensitive to rising U.S. Treasury yields, as their expected cash flow is still in the distant future, yet U.S. Treasury yields have recently declined due to concerns about a recession, boosting growth stocks.
Since its June 15 low, the Russell 1000 Growth Index has risen nearly 3% as of Wednesday, while the Russell 1000 Value Index closed flat in the same period.
Graff said that the upcoming wave of company second quarter reports should give investors a "clearer understanding" of the company's expectations for the second half of 2022 and the trend of stock . When talking about the stock market in the report, he said:
market has digested a certain degree of slowdown in the company's profits.
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