It seems the theme in the market changes almost on a daily basis, seeing markets just whip around. With vaccines and stimulus now rolled out, we are likely to see the Value space continue to hold strength and eventually rise further. Growth stocks are under pressure with the longer-term yields pushed higher.
So it seems the 10-year yields will likely continue higher in the short term which will keep the pressure on. But the likelihood of further intervention by the FED in the way of yield control is likely. So watch this space as any hint of this could see markets jump.
There is an argument here that the longer-term yields could hit 2% or above if the FED is targeting 2-2.5% inflation. Long-term Bond investors generally need to make the same or more than inflation for the investment to be worthwhile.
Locally we are seeing the tapering off of stimulus with the Seekers subsidies and Keeper’s allowance due to finish over the next month. As a result, many small businesses will come under pressure. We are still seeing more and more Retail and Cafes close in the Melbourne CBD. This could also be affecting sentiment towards the Australian market.
The XJO is expected to edge lower on open this morning. This follows flat leads from the U.S on Friday. We should open near the 6666 level, which means we will likely go on to test this morning. U.S futures are slightly in the red, but if they tick into the green it will stem any losses today.
The uptrend line has come in around these levels as well and the market on Friday bounced off it. If we can manage to hold these levels we should continue higher eventually, following trend. Otherwise, we may be in for further sideward movement until we start getting the early to April.
The AUD is fairly flat which should help keep our miners buoyed who have been beaten up the past month or so. Unfortunately, Iron Ore sold off once more, and metals remain mixed so it may be some time before we see the materials turn higher.
US stocks closed slightly lower on average on Friday, with tech stocks one bright spot. US government bond yields ticked lower, which should have been a positive for share prices, but it seemed that many investors were more than happy to close their positions ahead of the weekend. It was a ‘quadruple witching’ on Friday, which is an alignment of expiries on four different derivatives and such a session can often lead to odd and sometimes volatile price movements. Markets were also boosted by comments from Fed Chair Jerome Powell to the Wall Street Journal that the Fed would continue to provide aid to the economy for ‘as long as it takes’.
Still, many are worried that all this economic support will lead to an expected jump in inflation, which is leading to the rising government bond yields. Tech stocks were the strongest performers overnight, while healthcare stocks also rose nicely. Financials and Telecoms were the weakest performers, with most other major sectors closing fairly flat.