Return Of The Rising Yields

March Madness started on Thursday (Mar. 18), but stocks got the jump on their own brackets this week. Let’s dive in.

Although Wednesday (Mar. 17) saw the indices have a nice St. Patrick’s day green reversal thanks to Jay Powell babying us on inflation thoughts again, Mr. Market isn't stupid. Manic, but not stupid. We saw a return to the strong rotation trend out of growth stocks the day after Powell's testimony (Mar. 18).

Thursday (Mar. 18) saw bond yields surge to their highest levels in what seems like forever. The 10-year yield popped 11 basis points to 1.75% for the first time since January 2020, while the 30-year rate climbed 6 basis points and breached 2.5% for the first time since August 2019.

Predictably, the Nasdaq tanked by over 3% for its worst session in 3-weeks.

Jay Powell and bond yields are the most significant market movers in the game now. Get ready for the market next week when he testifies to Congress. That'll be a beauty. What's coronavirus anymore?

So after what's been a relatively tame week for the indices, we can officially say bye-bye to that.

Bond yields, though, are still at historically low levels, and the Fed Funds Rate remains at 0%. With the Fed forecasting a successful economic recovery this year, with GDP growth of around 6.5% -- the fastest in nearly four decades -- the wheels could be in motion for another round of the Roaring '20s.

The problem, though, is that the Great Depression came right after the first Roaring '20s.

Many are sounding the alarm. However, like CNBC's Jim Cramer, others think the current headwinds are overblown, and a mirror of the 2015-2016 downturn is based on similar catalysts.

Figure 1: Jim Cramer Twitter

Cramer argued that Powell is a talented central banker willing to "let the economy continue to gain strength so that everyone has a chance to do well."

Nobody can predict the future, and these growth stock jitters from rising bond yields may be overblown. But for now, it's probably best to let the market figure itself out and be mindful of the headwinds.

1 2
View single page >> |

Disclaimer: All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be ...

How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.