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At the start of Friday’s action, the 10-year Treasury yield rose and Nasdaq 100 futures fell.
This is the trend of the last month. After a very close link since the start of the pandemic, inflation-adjusted yields have continued to climb, but the Nasdaq 100 has suffered. This makes sense given the rich valuation of tech stocks – when safe bonds offer more than crumbs in return, they present an investment alternative to stocks.
So analysts are modeling how much technology could fall if bond yields continue to rise. Joe Kalish, chief global macro-strategy strategist at Ned Davis Research, says the Nasdaq 100 could fall 20% from its peak if the 10-year Treasury hits 2%. (The index is already down 6% from its peak.)
Kalish’s calculation depends on the stability of other relations. According to him, earnings yields and expected corporate bond yields have moved in tandem since 2014. A 2% 10-year Treasury would likely cause bond yields on Baa-linked bonds – the lowest rating. in the investment grade – reach 4.5%, which would require a 20% drop in the Nasdaq 100 to keep this relationship consistent.
Strategists at French bank Societe Generale tend to agree. They looked at the theoretical impact of an increase in bond yields, at different price-to-equity ratios. Given that the Nasdaq Composite is trading 31.5 times earnings, according to FactSet data, the chart shows the impact could be significant.
Most notable, however, is that Kalish remains bullish on stocks even with these risks. He looked at another valuation measure, using Census Bureau data on cash margins. “As cash flow has improved since the early 1990s and the cost of capital has fallen with interest rates, the economic margin has increased,” he writes. Currently, this margin is above its 5-year average. In the United States, the company recommends small caps over large caps and value over growth.
The buzz
The $ 1,400 stimulus checks for the $ 1.9 trillion relief package signed by President Joe Biden could arrive as early as this weekend. Biden set a goal of May 1 for all adults to be eligible to receive vaccines.
Novavax NVAX,
will be in the spotlight after Biotech said a completed advanced-stage clinical study showed its vaccine candidate to be 96.4% effective against “mild, moderate and severe illness caused by the original COVID-19 strain “. Thailand has delayed the deployment of the AstraZeneca AZN,
vaccine, joining the Scandinavian countries, including Denmark, on problems of blood clots. Italy would impose a lockdown over the Easter weekend, according to wire service reports citing a draft decree.
China is considering ways to tame e-commerce giant Alibaba BABA,
according to the Wall Street Journal. China also fined 12 tech companies, including Baidu BIDU,
and Tencent 700,
for alleged violations of antitrust laws.
DocuSign DOCU electronic signature company,
beat revenue and earnings expectations for its final quarter and provided a better-than-expected outlook on these metrics.
Data on producer prices and consumer sentiment highlight the economic calendar.
The steps
The 10-year Treasury yield TMUBMUSD10Y,
rose to 1.61% – surprisingly analysts given the success of bond auctions of this maturity earlier in the week.
ES00 equity futures,
in particular on the Nasdaq 100 NQ00,
slumped. GC00 gold futures,
dropped about $ 20 an ounce.
Random readings
There is a bull market in twins – with the birth rate rising by a third since the 1980s.
Scientists want to send 6.7 million semen samples to the moon as a global insurance policy.
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