In the early Friday action, yields on the 10-year Treasury rose and Nasdaq 100 futures declined.
That was the pattern of the past month. After a very close relationship since the start of the pandemic, inflation-adjusted yields have continued to rise, but the Nasdaq 100 has suffered. That makes sense given the rich valuation tech stocks enjoy – when safe bonds yield more than crumbs, they are an investment alternative to stocks.
So analysts are now modeling how far the technology could fall if bond yields continue to rise. Joe Kalish, chief global macro strategist at Ned Davis Research, says the Nasdaq 100 could drop 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 existence of other relationships. He says earnings yields and expected corporate bond returns have shifted in parallel since 2014. A 10-year treasury of 2% would likely cause bond yields on Baa-related bonds – the lowest investment-grade rating – to reach 4.5%, requiring a 20% drop in the Nasdaq 100 to keep that relationship consistent. .
The strategists of the French bank Societe Generale usually agree. They looked at the theoretical impact of an increase in bond yields at different price-to-share ratios. Considering that the Nasdaq Composite is trading at 31.5 times earnings, according to FactSet data, the chart shows the impact could be steep.
That said, most notably, even with those risks, Kalish remains optimistic about stocks. He looked at a different valuation measure, using Census Bureau data on cash flow margins. “As cash flow has improved since the early 1990s and the cost of capital has come down with interest rates, the economic margin has increased,” he writes. At the moment, that margin is above the five-year average. In the US, the company recommends small caps over large caps and value over growth.
The buzz
The $ 1,400 stimulus checks from the $ 1.9 trillion emergency package legally signed by President Joe Biden could arrive this weekend. Biden set a goal on May 1 for all adults to qualify for vaccines.
Novavax NVAX,
will be in the spotlight after the biotech said a completed late-stage clinical trial showed that its candidate vaccine was 96.4% effective against “mild, moderate and severe disease caused by the original COVID-19. -tribe.” Thailand has delayed the rollout of the AstraZeneca AZN,
vaccine, joining Scandinavian countries, including Denmark, over concerns about blood clots. Italy will reportedly impose a lockdown over Easter weekend, according to reports from the wire service citing a draft decision.
China plans ways to tame e-commerce giant Alibaba BABA,
according to The Wall Street Journal. China has also fined 12 technology companies, including Baidu BIDU,
and Tencent 700,
for alleged violations of antitrust law.
Electronic signature company DocuSign DOCU,
exceeded sales and earnings expectations for the last quarter and delivered a better-than-expected outlook for those metrics.
Producer price and consumer confidence data highlight the economic calendar.
The markets
The return on the 10-year Treasury TMUBMUSD10Y,
rose to 1.61% – surprising analysts given the successful auction of bonds with that maturity earlier this week.
Equity Futures ES00,
especially on the Nasdaq 100 NQ00,
collapsed. Gold futures GC00,
fell by about $ 20 an ounce.
Random reads
There’s a bull market in twins – with a birth rate that’s up a third since the 1980s.
Scientists want to send 6.7 million sperm samples to the moon as a global insurance policy.
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