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The eagerly awaited inflation data for August is weaker than expected, which turned out to be good news for the bond market, but not for a struggling stock market this month.
The fact that bond yields are so low with inflation north of 5% helped push stocks up, with the S&P 500 SPX,
even after his sixth loss in seven sessions, still up 18% this year.
Eddy Elfenbein, portfolio strategist for the AdvisorShares Focused Equity ETF and editor of the Crossing Wall Street blog, decided to examine the correlation between inflation-adjusted bond yields and equities.
“If someone says the stock market is cheap or expensive, you naturally have to ask, compared to what? For judging stocks, the 10-year Treasury yield is a good place to start. The problem with Treasury bill yields is that inflation can greatly affect them. It’s there that [Treasury inflation-protected securities] come in because those bond yields are adjusted for inflation, ”he says.
Since 1983, he has found that on days when 10-year TIPS fell 1.67% more, the stock market, as measured by the Wilshire 5000 W5000,
had a negative return. But when returns were zero or less, the stock market generated an average return of over 38%.
The tipping point appears to be 0.5% – when the 10-year TIPS yield is at least 0.5%, the stock market yield has been 5.1%; but when lower, the stock market gained 23.3%.
The 10-year TIPS yield on Tuesday was -1.05%, which is close to a record low. “For now, the bond market is reporting more good news for stocks,” Elfenbein said.
The buzzing
Chinese President Xi Jinping did not accept the invitation to meet with US President Joe Biden, the Financial Times reported. Biden told a group of White House reporters that the story was not true.
Chinese economic data was worse than expected, with retail sales increasing only 2.5% year-on-year, their worst result in 11 months. The US Economic Calendar includes posts on the New York Fed’s Empire State Manufacturing Index, import prices and industrial production.
Microsoft MSFT,
said it was increasing its dividend by 11% by allowing a share buyback of up to $ 60 billion.
Las Vegas Sands LVS,
and Wynn Resorts WYNN,
fell sharply in pre-market trade due to concerns about potential regulation in Macau.
Coffee chain Dutch Bros and high-performance shoe maker On Holding debut on the stock exchange on Wednesday.
California Governor Gavin Newsom easily defeated a recall effort.
SpaceX is set to launch four citizens – including Shift4 Payments FOUR,
founder Jared Isaacman – in space.
The market
US ES00 equity futures contracts,
NQ00,
edged up after the recent round of declines. The 10-year Treasury yield TMUBMUSD10Y,
slipped to 1.27%.
Wholesale natural gas prices in Europe have skyrocketed after a major fire at a key electricity converter station cut a cable carrying electricity from France to the UK
Random readings
Ailing Chinese real estate developer Evergrande 3333,
offered parking spaces to its creditors, who did not accept.
Bitcoin billionaires are trying to resurrect woolly mammoths.
Rest in peace Norm Macdonald. Here is a joke he talked about moths.
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