Have investors traded their concerns about rising prices for concerns about slowing global growth? Perhaps, but there is still a lot of confidence in the months ahead about corporate earnings and the economy. On Thursday, however, those apparent growth anxieties were still in effect. The 10-year rate TMUBMUSD10Y, 1.300 percent fell to a five-month low below 1.25 percent as a relentless rally in longer-term U.S. Treasury prices continued to hammer down rates. Stocks dropped as investors sought protection in the long end of the bond market, with the Dow Jones Industrial Average DJIA, -0.75 percent down more than 500 points at its session low.
Yields and stocks both mitigated their losses on Thursday afternoon, but they are still down, with the 10-year yield falling 2 basis points to 1.30 percent. The Dow Jones Industrial Average was down roughly 300 points, or 0.9 percent. The S&P 500 SPX, -0.86% fell 0.8 percent and the Nasdaq Composite COMP, -0.72% fell 0.5 percent after closing at all-time highs on Wednesday. The reason for the drop in Treasury yields, which appear to be dictating moves throughout financial markets, has sparked a dispute among investors and analysts. When you add them all together, you get a broad sense of anxiety about what will drive a stock market that has set a streak of all-time highs amid what many believe is the end of economic growth. In a Thursday letter, Nicholas Colas, co-founder of DataTrek Research, said, “Our working premise is that we’re in the middle of a moderate global growth scare… Why has the 10-year Treasury yield dropped to its lowest level since February? According to one investor, government debt is the new meme asset on Wall Street. Because of its high-quality growth/big tech overweight, the risks were mostly opaque to the S&P 500 index before Thursday’s selloff, which saw large-cap growth firms get hammered alongside more cyclically oriented stocks, Colas added. However, they were visible when looking at other recent events, such as a stronger dollar, a drop of more than 4% in the MSCI Emerging Markets index EEM, -2.08 percent, and a 0.5 percent drop in the small-cap Russell 2000 RUT, -0.94 percent.
Foreign government bond yields have also fallen, with the 10-year German bund yield TMBMKDE-10Y, -0.305 percent falling to -0.3 percent through Wednesday from -0.11 percent at the end of May, and the Japanese 10-year yield TMBMKJP-10Y, 0.027 percent falling to 0.04 percent from 0.09 percent at the end of May. Individual story lines, such as China’s crackdown on tech businesses, the Russell 2000’s overstretched surge earlier this year, and concerns about the development of the delta form of the coronavirus that causes COVID-19 could spark additional lockdowns, are all factors, according to Colas. See: What to Expect If “Peak Everything” Has Already Happened and Markets Feel Gravity Once More When the storylines are combined, though, it creates a climate in which “investors might sensibly say, ‘I’ll store some wealth in Treasurys until things become more clear,’” according to the report. Colas explained. He’s one of the optimists, suggesting that while yields may continue to decline in the coming weeks, it’s too soon to write the global economic recovery’s obituary. Instead, it appears that markets will “temporarily pause and reassess,” as they have in previous cycles./n
