- Stocks sink as T-note yields continue to rise
- Pandemic improvement stalls
Stocks sink as T-note yields continue to rise — The U.S. stock market on Thursday fell sharply as Treasury yields continued to rise. The S&P 500 index on Thursday closed -1.48%, while the Nasdaq 100 index fell -3.13%.
The stock market is taking the rise in T-note yields seriously as seen by the fact that the more speculative areas of the stock market, such as tech stocks, are taking a heavy hit on valuation concerns. Notable tech losers Thursday included a -6% plunge in Tesla (TSLA) and Zoom Communications (ZM), and a -5% fall in Advanced Micro Devices (AMD), Micron Technology (MU), and Xilinx (XLNX).
Also, homebuilder stocks took a hit on Thursday due to concern about rising mortgage rates. Lennar (LEN) closed down more than -6% and DR Horton (DHI) and PulteGroup (PHM) closed down more than -5%. The 30-year mortgage rate has risen to a 9-month high of 3.09%, up by +44 bp from January’s record low of 2.65%.
U.S. stock indexes on Thursday were also undercut by the -7.12% plunge in April WTI crude oil prices and the sharp drop in energy stocks. Notable energy-company losers included an -8% plunge in Marathon Oil (MRO) and Occidental Petroleum (OXY), and a plunge of more than -6% in Valero Energy (VLO) and ConocoPhillips (COP).
Oil prices plunged on Thursday mainly due to heavy long-liquidation pressure by funds. Last Friday’s Commitment of Traders data (COT) showed funds boosted their net-long NYMEX crude positions by 7,625 the week ended March 9 to a 2-1/2 year high of 390,688.
That crowded trade in being long crude oil fell apart on Thursday as some negative fundamental news emerged. Bearish factors for crude oil on Thursday included (1) the +0.46% rally in the dollar index, (2) the sharp sell-off in stocks, which sparked some risk-off selling in other assets, and (3) the poor progress on the pandemic front in Europe with continued lockdowns and a slow vaccination pace.
The markets are also worried about higher U.S. oil production as higher oil prices make some U.S. wells profitable again. Primary Vision reported that the number of fracking crews in the U.S. rose to 182 in the week ended March 12, up +10% w/w and the highest level in 11 months.
Thursday’s rise in the 10-year T-note yield to a new 13-month high of 1.75% was the main factor causing damage in the markets. The 10-year T-note yield so far this year has soared by +84 bp from the end-2020 level of 0.91%.
The 10-year T-note yield continued to rise yesterday after several FOMC members in the new set of Fed-dots released Wednesday turned more hawkish on higher interest rates for 2022 and 2023. The new dot-plot showed that there are now 4 FOMC members who are expecting a rate hike in 2022, up from one member in the December dot-plot. For 2023, there are now 7 members predicting higher rates, up from 5 members in the December dot-plot forecast. Moreover, 2 of those 7 members are very hawkish for 2023 and are predicting a +100 bp rate hike, while 3 of the members expect a +75 bp rate hike.
T-note prices were also undercut Thursday after the 10-year breakeven inflation expectations rate rose to a new 7-3/4 year high of 2.34%, which was 34 bp above the Fed’s +2.0% symmetrical inflation target. Inflation expectations are on the rise as the markets worry that the U.S. economy might turn very hot in the middle of this year as the pandemic fades and the massive amount of fiscal stimulus kicks in. The U.S. government approved a $900 billion pandemic aid package in late December and then another $1.9 trillion pandemic aid package just last Thursday.
The consensus is for GDP growth to kick into high gear of +6.5% in Q2 and +6.4% in Q3, finally easing off to +4.5% in Q4. On a calendar year basis, GDP is expected to show strong growth of +5.6% in 2021, more than recovering from 2020’s -3.5% decline.
Pandemic improvement stalls — The decline in U.S. Covid infection rates has stalled this week. The 7-day average of new daily Covid infections on Sunday fell to a 5-month low of 51,820, but has since moved mildly higher. The good news is that the 7-day average of daily Covid deaths continues to fall and hit a 4-month low of 1,264 on Wednesday. However, the Covid death rate is a lagging indicator and is simply catching up with the recent decline in the overall new-infection figures.
Dr. Fauci has warned that a new Covid wave is possible due to variants and areas that are letting down their guard. He has also expressed concern about people who are resisting vaccines, and he encouraged all eligible Americans to get the vaccine. However, he also said that he has a “great degree of confidence” that pandemic guidelines can be loosened by July 4. President Biden last week said that he wants all states to make all adults eligible for a vaccine by May 1, and he suggested that the country could begin to return to normal by July 4.
According to Bloomberg’s vaccine tracker, 113 million vaccine doses have so far been given in the United States. In the past week, an average of 2.47 million doses per day were given, which means that 0.7% of the total U.S. population is being vaccinated every day.
Bloomberg reports that 22.2% of the U.S. population has received one vaccination dose, and 12.0% have been fully vaccinated, which means a total of 34% of the U.S. population has at least some immunity from a vaccine dose. That means that well over 40% of the U.S. population currently has some degree of Covid immunity after adding in people who have recovered from Covid and have some antibodies.
