After losing out last week, stocks and index ETFs rallied in early Monday trading, amid declining Treasury yields.
The tech-heavy Nasdaq Composite added 1.24% as bond yield fell, while the S&P 500 climbed 0.6%. The Dow Jones Industrial Average traded just above even.
Major stock ETFs are climbing on Monday as well. The SPDR Dow Jones Industrial Average ETF (DIA), SPDR S&P 500 ETF Trust (SPY), and Invesco QQQ Trust (QQQ) are all higher just after 11:30 AM EST.
Many of the key technology stocks, such as Apple, Facebook, and Microsoft, which were downtrodden last week, gained more than 1%. Tesla rallied over 5% as Cathie Wood’s Ark Invest revised the price target on the stock, projecting it to quadruple in four years. Wood’s ARK Innovation ETF (ARKK) is up over 2.18% Monday.
The 10-year Treasury yield dipped 3 basis points to around 1.7%, after hitting a 14-month high last week. The rally in rates in recent weeks has created worries about valuations on growth and tech stocks. Declines in the stock market arrived as bond yields jumped again last week.
“Investors will remain anxiously focused on interest rates in coming months,” Goldman Sachs strategist David Kostin wrote in a note Monday. “Like the Fed, our economists forecast a transient rise in core PCE (personal consumption expenditures) inflation this spring as a result of short-term factors including the base effect of weak inflation in 2020.”
“Although inflation will likely recede to 2.0% in 2022, investors will fear the above-target inflation may persist and could lead to further upward pressure on interest rates,” Kostin added. “Our rates strategists forecast the 10-year Treasury yield will hit 1.8% by June.”
Are Inflation Fears Largely Behind Us?
Some analysts see the initial concerns diminishing as interest rates level off.
“After the reopening exuberance fades and interest rates level off, investors will rotate back into large cap technology stocks with strong free cash flow, recurring revenues and increasing user penetration,” said Richard Saperstein, chief investment officer at Treasury Partners.
The three major indexes fell last week, but even with that weakness, the S&P 500 and Dow are still trading near record highs, and the Nasdaq is close behind. Darrell Cronk, chief investment officer of Wells Fargo’s Wealth and Investment Management, believes the stock market could continue to rally for some time.
“If you went down the list and started putting boxes of check-check-check-check, you would look at this in a vacuum … and say it looks like an early recovery cycle that’s roughly a year in that probably has a number of years yet to run,” Cronk said.
Adding to the market optimism, vaccines continuing to roll out across the country, although a number of states are seeing an increase in coronavirus cases.
U.S. trial data released Monday revealed that the Covid-19 vaccine developed by AstraZeneca and the University of Oxford is 79% effective in preventing symptomatic illness and 100% effective against severe disease and hospitalization, although it is still under scrutiny for possible side effects such as blood clots.
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