Earlier on Friday, 10-year Treasury yields were rising and Nasdaq 100 futures were falling.
This has been the pattern of the last month. After a very close connection since the pandemic began, inflation-adjusted yields have continued to rise, but the Nasdaq 100 has suffered. This makes sense, given the rich valuation of technology stocks: when insurance bonds offer more than springs as a return, they present an investment alternative to stocks.
So now analysts are modeling how far technologies could go down if bond yields continue to rise. Joe Kalish, global chief strategist at Ned Davis Research, says the Nasdaq 100 could fall 20% from its high if the 10-year Treasury reaches 2%. (The index is already down 6% from its maximum).
Kalish’s calculation depends on other relationships remaining stable. According to him, earnings yields and projected yields on corporate bonds have moved together since 2014. A 10% treasury of 2% would likely cause Baa-related bond yields (the investment rating lower) would reach 4.5%, which would require a 20%% drop in the Nasdaq 100 to keep this ratio consistent.
The strategists of the French bank Societe Generale tend to agree. They have analyzed the theoretical impact of a rise in bond yields, with different price-to-equity ratios. Given that the Nasdaq Composite is trading in profits 31.5 times, according to FactSet data, the chart shows that the impact could be strong.
That said, the most notable thing is that Kalish remains bullish in stocks even with these risks. He examined another 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 fallen with interest rates, the economic margin has increased,” he writes. Right now, that margin is above the five-year average. In the United States, the firm recommends small capitalization over capitalization and value above growth.
The buzz
The $ 1,400 stimulus checks from the $ 1.9 trillion relief package signed into law by President Joe Biden could arrive as early as this weekend. Biden set a May 1 goal for all adults to receive vaccines.
Novavax NVAX,
will be in the spotlight after biotechnology said a final-stage clinical study showed its vaccine candidate was 96.4% effective against “mild, moderate and severe disease caused by the COVID- strain. 19 original “. Thailand delayed the launch of AstraZeneca AZN,
vaccine, joining Scandinavian countries, including Denmark, for blood clot problems. According to reports from the cabling service citing a draft decree, Italy will impose a closure on Easter weekend.
China plans ways to domesticate e-commerce giant Alibaba BABA,
according to the Wall Street Journal. China also fined 12 technology companies, including Baidu BIDU,
and Tencent 700,
for alleged antitrust violations.
Electronic signature company DocuSign DOCU,
exceeded last quarter’s earnings and earnings expectations and offered a better-than-expected outlook on these metrics.
Data on producer price and consumer sentiment highlight the economic calendar.
The markets
The performance of the TMUBMUSD10Y three years from the Treasury,
rose to 1.61%, surprising analysts, given the successful bond auction of this maturity earlier in the week.
ES00 stock futures,
particularly on the Nasdaq 100 NQ00,
fallen. GC00 Gold Futures,
fell about $ 20 an ounce.
Random readings
There is a bullish market in twins, with a birth rate at one-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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