But Thursday morning, the mood had changed. Investors abandoned U.S. government bonds, generating the 10-year Treasury yield benchmark to 1.738%, the highest level in more than a year. Nasdaq Composite futures fell sharply, indicating that technology stocks could prepare for another fall.
The change shows the mental tug-of-war that is developing in all markets. While many investors are preparing for an economic boom later this year, anxiety is growing about adverse side effects, namely inflation, which could force the Federal Reserve to raise interest rates. or reduce bond purchases earlier than expected.
“Strong economic growth, which we have been expecting since last summer, closes the production gap and leads to inflationary pressure,” Bank of America equities strategists said Wednesday. “No surprises.”
The economic picture is clearing up. Thanks to President Joe Biden’s $ 1.9 trillion stimulus package and vaccine deployment, Fed officials now project that US gross domestic product, the broadest measure of economic activity, will rise 6.5% this year, more than the 4.2% forecast in December.
Meanwhile, the unemployment rate is expected to drop to 4.5% by the end of the year. In 2023, the unemployment rate could return to 3.5%, where it stood before the pandemic hit.
We’re not there yet, Powell acknowledged. The Department of Labor report on Thursday is expected to file another 700,000 claims for the first time for unemployment benefits. This would be the lowest number of claims since the pandemic began, but still well above 200,000, some claims that were normally recorded before the virus arrived.
The Fed chairman stressed that the central bank plans to examine the latest data when making decisions rather than relying on projections.
“We said we would continue to buy assets at this rate until we see substantial progress,” Powell said. “And that’s real progress, not anticipated progress.”
Still, some on Wall Street are wondering if the Fed’s choice to stay tight (potentially until 2023) could mean it is forced to take more dramatic actions along the line and fear that inflation may stay longer than officials think.
“For now, all is well if the Fed’s hypothesis that inflation is transient is proven,” Jim Reid of Deutsche Bank told customers on Thursday. “However, if the market doubts the transience of inflation at any time, that’s when the fun and games begin.”
The Bank of America team is more bloody. “There’s always some reason or other from the start of this bullish market to complain,” their strategists said. They believe investors can climb the “wall of concern,” even given that markets are flooded with cash and business profit growth looks set to jump. Your advice? “Stay bullish.”
SPAC fundraising has increased madness by 2,000% over a year ago
Now, the world’s largest asset manager is expressing concerns, according to my CNN Business colleague Matt Egan.
“If we look at the SPAC market, there are really attractive new companies and new technologies coming to the market that are financing effectively,” BlackRock executive Rick Rieder told CNN Business. “And then there are those that make no sense.”
Rieder, BlackRock’s global fixed income investment director, urged investors to be careful before entering the space.
“You have to be very selective about where you’re going and not just jump on that train because it’s gone crazy,” he said.
Remember: Special purpose procurement companies (or interest companies that exist exclusively to make private entities public) have become fashionable on Wall Street. Even celebrities like Alex Rodriguez and Jay-Z have launched SPAC to take advantage of the trend.
U.S.-listed SPACs have raised $ 83.1 billion so far this year, according to Dealogic. This is an increase of 2,031% over the same point last year. As of Tuesday, the 2021 SPAC market topped a total of $ 82.6 billion by 2020.
One of the concerns is that the amount of SPAC money hunting for merger candidates may exceed the number of quality private companies that could be obtained.
Rieder noted that some SPACs are made public with high ratings of 40 or even 50 times their revenue. “There’s no chance I can get to that,” he said.
Volkswagen shares are soaring as the manufacturer faces Tesla
Ending the reign of Tesla would be a huge milestone in the transformation of Volkswagen into an electric vehicle. Badly burned by the diesel emissions scandal in 2015, the company is investing 35 billion euros ($ 42 billion) in electric vehicles, betting on its future for new technologies and a dramatic change in fossil fuels.
“Tesla is not just about electric vehicles. Tesla is also very strong in software. They really make the car work as a device. They are making good progress on the autonomous issue,” Volkswagen CEO Herbert Diess said this week. to Julia Chatterley of CNN. “But yeah … we’re going to challenge Tesla.”
UBS analysts told reporters last week that investors failed to appreciate how quickly Volkswagen is gaining ground on Tesla and how much money the German company can make by making an “all in” electric car in front of other players established, including Toyota and General. Motors. The bank has increased its target price for Volkswagen shares by 50% to € 300 ($ 358).
Until next time
Also today: Initial posting of unemployment claims in the United States at 8:30 am ET.
Coming tomorrow: a big week of announcements at central banks closes with the Bank of Japan.