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Stocks face high interest rates and sidestream fiscal stimulus over the next week

New York Stock Exchange Floor Trader

Source: New York Stock Exchange

The Covid-19 aid package is on track for final congressional approval over the next week and could be a double-edged sword for the market.

The bill should be optimistic about the strong rise it could put on stock markets and the economy, but it also faces concerns about what historically significant stimulus will bring to inflation and interest rates. There is a possibility.

Last week the stocks were mixed. Dow And S & P 500 Nasdaq has been reduced by interest rate sensitive technology names.benchmark Treasury yield for 10 years It revisited Friday’s recent high of 1.61% and continues to rise before trading at 1.54% in the second half of the deal. The yield will be the opposite price.

One of the stock wildcards may be how interest rates behave in future Treasury auctions.

There will be a $ 38 billion 10-year auction on Wednesday and a $ 24 billion 30-year bond auction on Thursday.

Traders are watching closely after the historically weak 7-year Treasury auction in February sent higher rates even in 10 years.

“Given what we’ve seen over the past seven years and Japan’s selling pressure, we’re a little more cautious,” said Ben Jeffrey, strategist on the US interest rate strategy team at BMO Capital Markets.

He said Japanese institutions may not be very interested in attending by the end of the fiscal year on March 31st.

Stimulation comes

The Senate was expected to approve a $ 1.9 trillion version of the stimulus package and send it to the House of Representatives for voting during the week. Otherwise, the market monitors key inflation reports with the CPI expected on Wednesday and the producer price index scheduled for Friday.

“I think the market is closely watching the progress of the stimulus package,” said Michael Alone, chief investment strategist at State Street Global Advisors. “I think they will continue to monitor Treasury movements for 10 years and get CPI data. It will provide information about those movements.”

He hopes that stimulus will continue to be a potentially market-shaking factor.

Inflation was a concern for the market, as rising inflation could crush margins and undermine profitability. For fixed income investors, it will hurt value and pay less interest.

“As long as the Treasury yield rise coincides with the inflation rise, I think the market can handle it. I think the challenge is when the yield is well above inflation,” Alone said.

He said the market is concerned that the next stimulus package could overheat the economy and cause inflation.

“I think it helps the conversation,’Do you really need another $ 1.9 trillion?'” Alone said, “I’m going to pour more gas into the fire. At this $ 1.9 trillion, the market is worried. I’m doing it. “

After a 1.4% year-on-year rise in core CPI in January, consumer price inflation in February is expected to slow slightly. However, the pace of inflation could rise, especially in March and April, as comparisons from last year, when the economy closed, are likely to look extreme.

Intermittent to continue

Strategists expect a push-pull between interest rates and equities to continue.

On Friday, interest rates rose and stock prices rose following a strong employment report in February.The· Economy added 379,000 jobs In February, there are about 160,000 more than expected.

“I don’t think 1.5% and 1.6% in 10 years are terribly annoying to the market,” said Liz Anne Sonders, chief investment strategist at Charles Schwab. She said the speed of movement was awkward.

Rotation from technology and growth into a more cyclical name in the financial, energy and industrial sectors have continued for the past week.

Energy has risen by more than 10% and oil prices have been high for nearly two years. Financials showed the next strongest move, rising 4.3% that week.

“I think we’re in a choppy integration phase,” Sonders said.

“There are some extreme historical spreads between what energy and finance are doing these days and technology and consumer discretion,” she said.

Sonders added that even when the integration phase is nearing its end, it suggests that some bubbling names may have more downsides. “I think the good news here is that it’s becoming a better environment for active stock pickers,” she said.

The Nasdaq Composite fell more than 10% from its February 12 highs as of Thursday. But on Friday, the index turned around, rising about 1.6%. This is a positive sign for the market, especially as it happened when interest rates rose.

The· S & P 500 That week rose 0.8% Dow It increased by 1.8%.The· Nasdaq, On the other hand, it decreased by 2%.

“Ultimately, the high-quality segments that were hit in technology and communications probably needed to see valuation reweighting,” Sonders said. “No doubt, there are some microbubbles on the market, and they may have to suffer even more downsides.”

She said investors may want to adjust their holding quotas on a regular basis rather than waiting for adjustments around the calendar.

“If you see a spike in a particular sector for a couple of weeks, four or five days, rejuvenate a bit,” Sonders said.

Calendar one week ahead

Monday

Revenue: Stitch correction, Casey’s General Store

Wholesale inventory at 10am

Tuesday

Revenue: H & R block, Navistar, Thor Industries, Dick’s sporting goods

6am NFIB SME Survey

$ 1: 58 billion 3-year bond auction

Wednesday

Revenue: Campbell soup, Oracle, Vera Bradley, Tupperware, United Natural Foods, Adidas, Cloudera, Bumble, fossil, lending club, express, AMC entertainment

Apply for a mortgage at 7:00 am

8:30 am CPI

$ 38 billion 10-year bond auction at 1: 38 pm

2:00 pm federal budget

Thursday

Revenue: Alta Beauty, Vail Resorts, DocuSign, Posh mark, Go go, Zumiez, JD.com, WPP, Party city

8:30 am Unemployed billing

10am JOLT

$ 24 billion 30-year bond auction at 1:24 pm

Friday

Revenue:buckle

8:30 am PPI

Quarterly service survey 10:00 am

Consumer sentiment at 10 am

Stocks face high interest rates and sidestream fiscal stimulus over the next week

https://www.cnbc.com/2021/03/05/stocks-face-the-crosscurrents-of-higher-interest-rates-and-fiscal-stimulus-in-the-week-ahead.html Stocks face high interest rates and sidestream fiscal stimulus over the next week

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