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The stock market is rising Wednesday–but just barely–as bond yields head lower ahead of the release of the Fed minutes, helping to revive interest in
Amazon.com
(AMZN),
Apple
(AAPL), and other tech stocks.
The
Dow Jones Industrial Average
has ticked up 9.13 points, while the
S&P 500
has advanced 0.1%, and the
Nasdaq Composite
has gained 0.2%. The 10-year Treasury yield has dipped 0.062 percentage point to 1.3308% after dipping below 1.3% earlier this morning.
That decline in the 10-year Treasury yield certainly has everyone’s attention. It was just a few months ago that the yield was near 1.75% and everyone was talking about it hitting 2%–or even higher. No longer. Now, the big question seems to be what the falling yield portends. Slowing growth? Risk off? Nothing at all? It’s certainly hard to know. But one thing is clear: Treasuries are suddenly in demand.
“The overnight price action confirmed Tuesday’s rally with an impressive 2.15x the normal trading volumes and half of the flows in the 10-year sector,” writes BMO’s Ian Lyngen. “This concentration of activity in the ‘benchmark of all benchmarks’ reflects a move that is about Treasuries as an asset class as opposed to any policy nuance in curve shape or reflation versus reopening optimism. Reading these particular tea leaves is further complicated by the fact the move hasn’t been the classic flight-to-quality triggered by a meaningful correction in risk assets that one might have anticipated given the magnitude of the decline in US rates.”
Not at all. While the drop in yields has caused investors to give up on the cyclical trade, it certainly has been good for big tech. Amazon.com hit an all-time high on Tuesday after languishing for nearly a year, while Apple looks not far behind. Amazon is up 0.8% to $3,706.35, while Apple has advanced 1.5% to $144.21, above its record closing high.
That makes sense. If growth is slowing, investors want to own companies that can grow no matter what. And lower yields can make future cash flows worth more in the discounted cash-flow models that analysts use to value stocks. Until Treasury yields rise again, don’t expect that outperformance to change.
Investors will be looking to the minutes from the Federal Reserve’s June meeting for clues to what could happen with monetary policy–and bond yields. “Investors will be scrutinizing the minutes closely for further clues as to the Fed’s next moves,” writes City Index’s
Fiona Cincotta.
“However, it is worth keeping in mind that the minutes are already almost 3 weeks old, potentially making them outdated. Given the tick higher in unemployment in June and the weaker than forecast ISM services PMI, concerns over the Fed accelerating towards tighter policy are already easing.”
Here are five stocks on the move Wednesday:
Didi Global
(DIDI) has dropped 7.1% one day after shedding 20% after Chinese regulators ordered it deleted from that nation’s app stores. U.S. Sen. Marco Rubio was also calling out the company.
AMC Entertainment
(AMC) has dropped 11% in premarket trading after dropping 3.9% on Tuesday. That sets it up for a fourth straight loss, which would be the longest losing streak since April.
Oasis Petroleum
(OAS) has fallen 1.3% after getting upgraded to Outperform from Sector Perform at RBC Capital as the price of WTI Crude Oil futures slips.
Boston Beer
(SAM) has risen 2% after getting upgraded to Outperform from Neutral at Credit Suisse.
Sunnova Energy International
(NOVA) has risen 3% after getting upgraded to Strong Buy from Outperform at Raymond James.
Masco
(MAS) has dropped 0.8% after getting cut to Underweight from Neutral at JPMorgan.
Write to Ben Levisohn at ben.levisohn@barrons.com
