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S&P 500 Ends Flat, but Tech Basks in Post-Fed Glory

Stock MarketsJun 17, 2021 04:21PM ET
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© Reuters.

By Yasin Ebrahim

Investing.com – The S&P 500 ended flat Thursday as tech was lifted by falling bond yields but gains for the broader market were kept in check by falling cyclical stocks following the Federal Reserve's hawkish turn a day earlier.  

The S&P 500 fell 0.06%. The Dow Jones Industrial Average was down 0.62%, or 210 points, and the Nasdaq Composite was up 0.87%.

The move lower in Treasury yields suggests that we're on a path to lower growth at a time when the Fed's view that inflation is transitory gains in popularity, creating the perfect cocktail for tech as investors look to quench their thirst for growth.

The fall in 10-year break-evens is giving tech "somewhat of a green light if indeed the Fed is correct on inflation being 'transitory,' just as the long end of the curve implies a low-growth environment ahead (effectively making growth scarce)," Mark Luschini, chief investment strategy at Janney Montgomery Scott.

Others, however, offer a more simple explanation for the fall in yields: falling supply.

"The supply side of treasuries has come down," said Aptus Capital Advisors portfolio manager David Wagner said in an interview with Investing.com on Thursday​. During the pandemic, the limit on the debt ceiling - how much money the U.S. government can borrow -  was lifted, but it is set to be reimposed on July 31.

Ahead of the deadline, the government is using the cash on its balance sheet, or Treasury General Account, rather than selling of bonds to raise cash for spending. Against this lower supply, the Fed continues to buy bonds, pushing prices higher, and yields lower.

"They're (the government) not issuing as much treasuries as before, yet the Fed is still purchasing $80 billion worth of treasuries every single month, and they're still seeing an increased demand from Europe," Wagner added. "When demand rises and supply declines, you're going to see yields compress, and that's what has been happening right now."

Tech, however, a big fan of falling yields, didn't seem to care about whether the move in rates will be transitory.

Apart from Google-parent Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL),  Amazon.com (NASDAQ:AMZN) and Facebook (NASDAQ:FB) were more than 1% higher.

The semiconductor stocks also bolstered the wider tech sector, with Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD) sharply higher.

Cyclicals, meanwhile, struggled as the rotation from value to growth appears to be in vogue once again.

Financials were dragged down by banks as lower yields hurt net interest margin.

JPMorgan (NYSE:JPM), Goldman Sachs (NYSE:GS), and Bank of America Corp (NYSE:BAC) were down sharply, with the latter down 4%.

Lower interest rates hurt the return on interest that banks earn from their loan products, or net interest margin – the difference between the interest income generated by banks and the amount of interest paid out to their depositors.

When rates do move higher, however, cyclicals – those sectors of the market that move in tandem with the economy - will be the place to be.  

"At the beginning portion of this year, the type of securities that outperformed when you had a high velocity increase in real rates was the high beta cyclical names. Whether the market goes up or down, I think that there's a longer runway for stock appreciation in the more cyclical areas of the market rather than the defensives," Wagner said.

In other news, Honest Company (NASDAQ:HNST) ended 7% lower after its maiden earnings report fell short of market expectations.

S&P 500 Ends Flat, but Tech Basks in Post-Fed Glory
 

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Comments (5)
Stan Smith
Stan Smith Jun 17, 2021 9:05PM ET
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"Glory" nothing glorious about the upcoming inflation tsunami
Joel Schwartz
Joel Schwartz Jun 17, 2021 7:03PM ET
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Nothing strong about an economy that needs 0% rates and $120B of bonds bought every month via the FED.
Rob Fordham
Rob Fordham Jun 17, 2021 7:03PM ET
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Theybsaid they are tapering and you do realize that we just went thru an event like no one alive has ever seen
Larry DeAngelis
Larry DeAngelis Jun 17, 2021 7:03PM ET
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Rob Fordham Tou sound like a real ****
Joel Schwartz
Joel Schwartz Jun 17, 2021 7:03PM ET
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Rob Fordham The FED’s reckless monetary policies are a larger threat than the pandemic ever was, by far.
JAMES CUNHA
JAMES CUNHA Jun 17, 2021 6:00PM ET
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"Glory?" Higher jobless claims are not glorious! The Fed's ongoing monetary policies have clearly created a toxic outlook whereby Wall Street celebrates when more people are unemployed because it means that the Fed is less likely to taper QE.
JAMES CUNHA
JAMES CUNHA Jun 17, 2021 6:00PM ET
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Who is really benefiting from the ongoing QE?  Is really improving employment when jobless claims have increased?
Very Long
Very Long Jun 17, 2021 6:00PM ET
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More people being unemployed also has the side benefit that wages can be kept in check, increasing the profits that can be returned to the shareholders. Wages can't be stagnant forever, though, inflation will eventually bring the pain and something will have to give
Larry DeAngelis
Larry DeAngelis Jun 17, 2021 5:55PM ET
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The only thing that is "transitory" is the reopening!
Rob Fordham
Rob Fordham Jun 17, 2021 5:55PM ET
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Your ignorance is showing may want to tuck that back in
Larry DeAngelis
Larry DeAngelis Jun 17, 2021 5:55PM ET
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you probably work for Goldman .another crook!
Mitchel Pioneer
Mitchel Pioneer Jun 17, 2021 4:54PM ET
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Another joke of a day in the US Ponzi Scheme.  The miraculous mid-day "buying" spree appears with the predictability of the setting sun, yet the frenzy ends abruptly just as the S&P goes green.  About as flagrant as the criminal manipulation can get.  Tomorrow we'll have Friday fraud, and America will head into another weekend with a financial knife in their back.
Antonio Trevino
Antonio Trevino Jun 17, 2021 4:54PM ET
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Are you trading or writing a novel?
 
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