At the start of Friday’s stock, the 10-year Treasury yield rose and the Nasdaq 100 futures fell.
This has been the model for the last month. After a very close link since the beginning of the pandemic, inflation-adjusted yields continued to rise, but the Nasdaq 100 suffered. This makes sense, given stocks rich in valuation technology – when safe bonds offer more than crumbs in return, they are an alternative to equity investments.
So analysts are now modeling how far technologies could fall if bond yields continue to rise. Joe Kalish, global chief macro strategist at Ned Davis Research, says the Nasdaq 100 could fall 20% from the top if the 10-year Treasury reaches 2%. (The index has already fallen 6% from the peak.)
Kalish’s calculation depends on other relationships that remain stable. He says earnings and anticipated corporate bond yields have been moving in tandem since 2014. A 10% 10-year treasury would likely cause Baa bond yields – the lowest investment rating – to reach to 4.5%, requiring a 20% decrease in the Nasdaq 100 to maintain a consistent relationship.
Strategies from the French bank Societe Generale tend to agree. They analyzed the theoretical impact of the increase in bond yields, at different price-equity ratios. Given that Nasdaq Composite trades 31.5 times with gains, according to FactSet data, the chart shows that the impact could be accentuated.
That being said, it is most notable that Kalish remains a stockholder even with these risks. He analyzed another valuation measure, using data from the Census Bureau on cash flow margins. “As cash flow has improved since the early 1990s and the cost of capital has fallen with interest, the economic margin has increased,” he writes. At this time, this margin is above its 5-year average. In the US, the firm recommends low capitalization over large capitalization and value over growth.
Buzz
The $ 1,400 stimulus checks in the $ 1.9 trillion aid package signed into law by President Joe Biden could arrive this weekend. Biden set a May 1 target for all adults to be eligible for vaccines.
Novavax NVAX,
will be in the spotlight after biotechnology said a late-stage clinical study showed that its vaccine candidate was 96.4% effective against “mild, moderate and severe disease caused by the original COVID-19 strain”. Thailand has delayed the launch of AstraZeneca AZN,
vaccine, which joins the Scandinavian countries, including Denmark, due to blood clot problems. It seems that Italy will impose a blockade over the Easter weekend, according to cable services reports citing a draft decree.
China plans ways to tame e-commerce giant Alibaba BABA,
according to The Wall Street Journal. China also fined 12 technology companies, including Baidu BIDU,
and Tencent 700,
for alleged antitrust violations.
DocuSign DOCU electronic signature company,
exceeded expectations for earnings and earnings for the last quarter and provided a better-than-expected outlook for these values.
Data on producer prices and consumer sentiment highlight the economic calendar.
markets
10-year Treasury yield TMUBMUSD10Y,
rose to 1.61% – surprising analysts, given the successful auction of bonds from this maturity at the beginning of the week.
ES00 futures,
especially on the Nasdaq 100 NQ00,
collapsed. Gold futures GC00,
dropped about $ 20 an ounce.
Random readings
There is a bull market in twins – the birth rate has risen by a third since the 1980s.
Scientists want to send 6.7 million sperm samples to the moon as a global insurance policy.
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