Medicare Agent News: Fretting Over Yields

Thursday, February 18, 2021

Fretting Over Yields

By Nicholas Jasinski | Thursday, February 18

Slipping. Stock indexes were hit with a double whammy today, but pared their losses before the close and remain near their record highs. The Dow Jones Industrial Average and the S&P 500 both lost about 0.4%, and the Nasdaq Composite fell 0.7%.

Investors' hand-wringing over rising bond yields continued to weigh on the more growth-oriented areas of the market today. The yield on the 10-year U.S. Treasury note hovered around 1.3% today—that's hardly much by historical standards, but it's relatively high for recent times. It's up from about 0.9% at the start of 2021 and 1.1% just over a week ago.

Growth stocks are generally expected to earn the bulk of their profits in the future. Those far-off cash flows are discounted back to the present using today's prevailing interest rates, or a derivative thereof. So when rates rise, the present value of future earnings declines, and the company's stock price should adjust accordingly.

Rising rates are a headwind for many companies in sectors like technology or communication services. Both groups of the S&P 500 lost 0.5% today.

The other hit to parts of the market today was this morning's latest weekly initial jobless claims data. That figure had been trending down since the start of the year, as U.S. Covid-19 cases have declined and restrictions have eased in many areas. The streak ended today, with 861,000 new claims for unemployment insurance reported for last week—well above the 773,000 consensus forecast.

The prior week's figure was also revised up to 848,000, from 793,000 reported originally. The initial jobless claims data has been choppy over the past year, and one week does not a new labor market trend make. But it nonetheless pushes back against some of the most optimistic economic scenarios that have been raised recently.

And the numbers were evidently enough to knock cyclical stocks from their recent rally. S&P 500 sectors like energy, financials, industrials, and materials all declined today, with energy's 2.6% drop leading the market lower.

So what's left? The likes of utilities, consumer staples, and other stable or defensive businesses. They're not economically sensitive, and they're not growth stocks either. The S&P 500 utility sector rose 0.5% today, while consumer staples ticked down less than 0.1%.

Tomorrow morning's February manufacturing and services PMIs will be another chance to gauge the health of the ongoing economic recovery.