stock market dip bond yield

Anyone notice how weird the stock market got last Friday?

Did you notice how weird the stock market got last Friday?

As investors prepared for a wave of economic growth, major regional and global indexes, including all three US indexes, tumbled on Friday.

Yes. We said that, right. The anticipation of economic growth caused the stocks to tumble.

Bloomberg explains

We got Bloomberg to explains what exactly is going on:

“From stocks to bonds and commodities, traders are moving in sync on the belief that the most ambitious vaccination campaign in history is about to supercharge economic growth and unleash price pressures that have long been dormant.”

Let’s analyse the bond market.

Perhaps not the best intro line on Hinge, but it’s crucial for understanding what’s currently happening in the stock market.

Investors are dumping bonds, sending yields (which is your return on a bond) higher. Much higher. This month alone, the yield on the 10-year Treasury note has gained the most in four years. Yesterday, it touched a one-year high above 1.6%.

Above all, rising yields are spooking the stock market for a couple of reasons:

It shows that investors are generally worried about inflation (whether they should be or not). Remember, Fed Chair Jerome Powell said this week he wasn’t concerned that inflation would spiral out of control.

The more a bond yields, the more it competes with stocks. Yesterday, the yield on the 10-year note briefly surpassed what’s known as the S&P’s “dividend yield,” a threshold investors use to measure the relative attractiveness of stocks vs bonds. Right now, it’s a tight contest.

Thus, we can see that tech stocks are the most brutal hit.

Shares in companies like Amazon, Microsoft, and Tesla all thrived at the pandemic height. At the moment, they are becoming less attractive in this brave new stock market world. “Value” stocks like utilities, which may have less growth potential than a high-flying software company but are also less risky, are gaining more favour.

ASEAN stock markets mixed reaction

In the region, the reaction was mostly positive except for the Philippines index.

Singapore and Malaysia posted positive (but minute growth). Thailand SET inched forward. Indonesia grew along with Vietnam.

In conclusion, we need some perspective before we move on. The Dow hit a record high on Wednesday, and the S&P is less than 3% below its all-time high. Above all, we can expect economic growth.

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