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By Nicholas
Jasinski | Tuesday, March 2 Giveback. U.S.
stock indexes closed modestly lower today, following yesterday's
major rally. The dynamic was a familiar one: Concerns over rising bond
yields remained in the spotlight, alongside optimism about the economic
recovery and vaccine rollout. Cyclically oriented materials stocks were
the best performers in the S&P 500, while
growth-oriented technology shares were the laggards. The Dow
Jones Industrial Average closed down 0.5%, near its lows of the day.
The S&P 500 lost 0.8%, and the Nasdaq
Composite fell 1.7%. The yield on
the 10-year U.S. Treasury declined ever so slightly today, to about 1.41%.
That’s still up from below 1% at the start of the year. Federal
Reserve officials have generally shrugged off the
rising yields in speeches this week, maintaining their dovish tone. Investors
remain divided over the matter. One camp sees rising yields as a mortal
threat to the bull market, with lofty valuations primed to collapse under a
higher discount rate and the end of TINA, or "There Is No
Alternative" to stocks. With the 10-year now yielding about as much as
the S&P 500 does, there does appear to be an alternative. The other
camp points to the reasons for the rising rates in the first place. It's less
of a sudden unprompted surge in yields, and more of a normalization after a
year of unprecedentedly low levels that everyone saw coming. And
the tangible signs of improvement in the economy and the outlook that
are prompting that normalization will mean higher sales and earnings
from a broad swath of companies later this year. On a sector
or individual stock level, that supports a continued rotation from defensive
and growth stocks to more cyclical and cheaper areas of the market—just as we
have been seeing lately. As for how 2021 will end on the index level, that's a
tougher question. The
answer may come down to one tradeoff: Do valuations fall faster than
earnings rebound, or do profits return faster than multiples
collapse? And that's just not a question that will be answered for some
time. Indexes will remain bumpy from day to day, with more action below the
surface. |
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DJIA: -0.46% to 31,391.52 The Hot
Stock: Fox Corp. +9.1% Best Sector:
Materials +0.6% |
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