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By Connor
Smith | Friday, January 7 Bond Yields
Strike Back. The 10-year
U.S. Treasury yield today touched 1.8% for the first
time since January 2020, though it settled at 1.77%. That's up from 1.51% at
the end of 2021. With bond yields still rising, technology
stocks extended their latest slide. The Nasdaq
Composite fell nearly 1%, capping off its largest
four-day decline since Sept. 9, 2020. The Dow
Jones Industrial Average ticked 0.01% lower while the S&P
500 index
dropped 0.4%. Even Bitcoin was caught in the crossfire, with the
closest thing to a blue-chip cryptocurrency falling at one point to $40,745,
its lowest level since September, according to CoinDesk. The jobs data was the big news of the
day. U.S. employers added 199,000 jobs in December, below estimates of
424,000. The unemployment rate fell to 3.9%. Barron's Lisa
Beilfuss writes
that investors should keep looking beyond the headline nonfarm payrolls
numbers: Details of the latest jobs
report show a tight labor market, where wages are climbing as millions of
workers remain out of the workforce. From a month earlier, average hourly
earnings jumped a higher-than-expected 0.6%. As employers raise pay to
recruit from a shrunken pool of candidates, economists and policy makers
worry that wage inflation will set in motion the kind of wage-price spiral
that defined the 1970s. Again it is a tale of two
surveys, says labor economist Heidi Shierholz, referring to the huge contrast
between the two surveys that make up the monthly jobs report. While the establishment
survey again shows paltry hiring, the household survey—behind the
unemployment rate—shows a gain of 651,000. The upshot? “The outrageously
strong household survey means we don’t have to get too worked up about the
payroll survey coming in below expectations,” says Shierholz. Barron's reporter Jacob
Sonenshine notes
that it's not a huge surprise that the rising bond yields are hitting
high-growth tech stocks, especially; higher yields make future profits
less valuable in current terms. But the action in the bond
market is unlikely to derail the stock market’s larger bull run. That is
because the aggregate earnings companies in the S&P 500 are expected to
generate this year amount to 4.8% of the index’s level. That’s about 3
percentage points higher than the 1.8% yield on 10-year Treasuries. The
upshot is that investors can expect a rate of return of more than double that
on 10-year bonds to compensate them for the risk of holding stocks. There is still plenty of
room for investors to soon buy more stocks, sending prices higher. And history bears that
out. Since 1960, when the gap between stocks’ and bonds’ expected yields has
been between 2 and 3 percentage points, the S&P 500 has seen an average
gain of 11.8% for the subsequent 12 months, according to data from Truist. At least there's a silver lining. Watch our weekly TV show on Fox
Business Saturdays at 10 a.m. or 11:30 a.m. Eastern
time; or Sundays at 10 a.m. or 11:30 a.m. ET. This week, see an interview
with former FDA Commissioner Scott
Gottlieb. Barron's is now accepting nominations for the third
annual Barron's 100 Most Influential Women in U.S. Finance.
The deadline for submissions is Jan. 15, 2022. Apply here. |
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DJIA: -0.01% to 36,231.66 The Hot Stock: Discovery +16.9% Best Sector: Energy +1.4%
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