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On Friday, June 25, 2021, traders at the New York Stock Exchange (NYSE).
NYSE
The
The Dow Jones Industrial Average is a stock market index that measures how well
The Dow Jones Industrial Average fell more than 200 points Wednesday, thanks to a decline in the 10-year Treasury rate. While the fall in Chinese tech stocks as a result of Didi’s removal from the country’s app stores and the failure of OPEC discussions drew the most attention, the reduction in Treasury yields had a greater impact on the US market. If it was a question of technology,
The Nasdaq Composite Index
wouldn’t have finished the day at 14663.64, a new high, up 0.2 percent. If it was merely an issue of risk-aversion due to OPEC fears, the situation would be different.
S&P 500 Index
To 4343.54, the stock would have lost more than 0.2 percent.
The 0.081 percentage point drop in the 10-year yield to 1.351 percent, on the other hand, explains practically everything. A lower yield signals weaker growth forecasts, which would hurt the Dow Jones Industrial Average more than the S&P 500 or the Nasdaq. What’s more, wouldn’t you know it? The Dow Jones Industrial Average dropped 208.98 points, or 0.6 percent, to 34,577.37. Falling yields also help to explain the Nasdaq’s gain, which is attributed to the index’s higher valuation, which poses a larger danger when yields rise. Then there was the Dow’s decline’s timing. When the OPEC summit ended, the market was essentially flat. It dealt with the Didi news without a hitch. It was only after the announcement of poor ISM services survey data—the index fell to 60.1 in June from 64 in May, well below estimates of 63.5. Never mind that a reading of more than 60 is still extremely high. The dip appears to support the market’s belief that economic growth has reached a nadir. According to Jefferies economist Thoms Simons, “[momentum] has dissipated slightly in the states that reopened the earliest.” “In addition, businesses’ failure to fill unfilled positions is preventing further increase of service sector activity. This should become less of an issue as increased unemployment benefits continue to roll out throughout the summer and into September. For the time being, it is putting a stop to upward momentum.” As well as giving huge tech firms like Apple a boost.
Amazon.com
(AMZN), which climbed 4.7 percent to an all-time high of $3,675.74 despite the departure of founder Jeff Bezos, and
Apple
(AAPL) increased by 1.5 percent to $142.02. According to Lisa Shalett, chief investment director at Morgan Stanley Wealth Management, the connection between the S&P 500 Information Technology Index and the 10-year Treasury rate is now at its lowest level since 2000. “Tech equities have traded directionally with economic growth for most of the last 20 years, carrying a positive correlation with long-duration Treasury yields, as investors perceived them as related to favorable economic growth,” she writes. ” However, the link has broken down as a result of abundant liquidity distorting both interest rates and tech equities… With tech trading at a 60% premium to an already overvalued market, interest rate sensitivity is once again negative, implying that any increase in yields will be a significant headwind.” Yields, on the other hand, show no signs of desiring to rise. Don’t expect big tech to back down until they do. Ben Levisohn can be reached at ben.levisohn@barrons.com./n
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