The Nasdaq got hammered overnight after the US 10-year bond yields hit their highest levels since Pre-Covid. The move higher in the longer-term yields saw Tech, Discretionary, and Communication services smash lower. Many expected this space to cool down after the FED comments Thursday, but Bond investors continue to sell out of the long-term part of the yield curve as many still expect inflation to come.
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.
Financials managed to edge out again as the steepening yield curve will help their bottom line. Energy stocks pulled back strongly as Crude smashed lower, and other sectors were only slightly in the red. All in all, the recovery theme is still in place, but the rising Bond yields continue to offset the sentiment.
The XJO is expected to fall on open this morning near 6700 following a strong pull back from U.S markets last night. U.S futures sit in the green this morning and coupled with the fact we didn’t rally as hard as they did leading to last night’s fall, we may not sell off as much either.
Due to our market moving sideward for arguably the past 3 months, many key levels exist, including where we are expected to open this morning. If 6700 fails, 6666 is the next key target. In addition, we are also holding the trend line.
US shares fell strongly overnight, with tech stocks leading the selling. Shares fell with concerns around treasury yields, rising inflation, and a big drop in oil prices. Oil fell after a surge of new coronavirus cases in Europe and with the International Energy Agency’s prediction that it will take another two years for global oil demand to reach pre-pandemic levels. US bond yields are trading at multi-year highs with strong inflation expectations, some are now predicting that the US 10-year will reach a yield of 2%, which makes some tech investors question the current high prices.
In US economic data overnight, jobs numbers came in weaker than expected, while manufacturing data came in better than expected. Oil & Gas and tech stocks were the strongest movers overnight, with big falls from these sectors. Every other major sector closed slightly lower.