The Fed needs to convince stock investors that their rate hike expectations are priced in ‘too aggressively’, Barclays says

Federal Reserve
  • The Federal Reserve will hold its two-day meeting on March 16 and 17.
  • The Fed has work in relaying its message that pricing of rate-hike expectations is too aggressive, says Barclays.
  • Large-cap tech and growth stocks may continue to see underperformance, the bank’s head of US stock trading says.
  • Visit the Business section of Insider for more stories.

The Federal Reserve will likely keep working to convince equity investors that expectations are being priced in “too aggressively” for when the central bank will start raising interest rates and how fast those changes will occur, according to the US head of stock trading at Barclays.

The Fed’s two-day meeting starting on March 16 will be held at a time of notable rotations in equity markets, spurred in part the quick rise in borrowing rates this year as tracked by some Treasury yields. Yields have pushed higher in part as investors anticipate a rise in inflation as the US economy recovers from the COVID-19 health crisis.

As yields climb, so do expectations for when the Fed will start raising its benchmark interest rate which currently sits at a range of 0%-0.25%.

Growth in the world’s largest economy is a supportive factor for stocks, and rising rates to reflect growth “shouldn’t be a headwind for equities,” said Michael Lewis, head of US cash equities trading at Barclays, during the bank’s teleconference about inflation on Tuesday.

But “the velocity of the move in rates that we saw, or the rate of change in the move that we saw, spooked equity investors,” he said.

Lewis said he recalled at the start of 2021 seeing about 31.5 basis points of rate hikes priced into year-end 2023, “and then we went almost to above 90 in just a handful of weeks. That’s a massive move in terms of what people are expecting the Fed to do, what the market is pricing in,” he said. “And if you are going to get hikes to that degree and velocity and in that timeframe, that is negative for equities.”

However, “if you look at the dot-plot, there’s no liftoff expected through 2023, it’s in 2024,” he said. The dot-plot is the Fed’s way of signaling its interest-rate outlook.

“So the real job…is for the Fed to walk people off that cliff,” he said, adding that a lot of the central bank’s commentary so far “hasn’t been successful in convincing the markets that they are pricing in these expectations a little too aggressively.”

Lewis expects the Fed “will find a way to walk that back”, including discussing at next week’s meeting its preferred inflation measure, the PCE price index. That index “is a good 30 to 40 [basis points] lower” than the consumer price index. Also, the Fed can discuss near-term inflation versus longer-term inflation, he said.

Looking ahead, Lewis said he expects investors to continue to see large-cap tech and growth stocks underperform over the course of the next 12 to 18 months in favor of more cyclical-type stocks.

“But given the velocity and the rate of change that we’ve seen in the rates market …counterintuitively over the next week or two if you see a bounce in equity markets, it’s going to be led by growth and tech,” because of their recent and steep selloffs, he said.

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Tech stocks stage sharp rebound as bond yields fall from highs

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US tech stocks staged a rebound on Tuesday after falling into correction territory on Monday, as movements in bond yields continued to have an outsized influence on the sector.

The Nasdaq 100 traded up more than 2% on Tuesday, while the S&P 500 and Dow were both slightly higher in morning trades.

Interest rates fell on Tuesday, with the 10-Year US Treasury Note falling to 1.54% from a high on Monday of 1.59% as more supply in the form of 3-year notes were set to be auctioned on Tuesday.

Here’s where US indexes stood at 9:30 a.m. ET on Tuesday:

Ark Invest’s Cathie Wood is sticking with her strategy of investing in high-growth technology names that are primed for long-term disruptive innovation, according to a Monday afternoon interview with CNBC. Wood said she is even more confident on her top holding, Tesla, following the recent decline and also sees more upside ahead for bitcoin.

But analysts from JPMorgan think investors should stick with the reopening trade and favor value and cyclical stocks over growth and technology stocks, according to a Monday note.

Coinbase, which is set to go public via a direct listing later this month, saw its valuation hit $90 billion in the last private market auction before the listing.

GameStop continued to rally on Tuesday, surging above $200 for the first time since its epic January short-squeeze following Monday’s announcement of activist investor Ryan Cohen leading a committee to transition the video game retailer into an e-commerce company.

Oil prices were higher. West Texas Intermediate crude jumped as much as 0.25%, to $64.92 per barrel. Brent crude, oil’s international benchmark, rose by 0.09%, to $68.36 per barrel.

Gold jumped as much as 2.3%, to $1,715.10 per ounce.

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Tech stocks slide as Senate’s stimulus approval boosts Treasury yields

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  • US equities fluctuated on Monday as the Senate’s approval of a $1.9 trillion stimulus package revived the value rotation.
  • Investors ditched tech stocks and Treasurys for value names and cyclicals in hopes for a swift economic rebound.
  • Oil erased early gains and slid after a Saudi Arabian crude terminal was attacked in a Sunday drone strike.
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US stocks wavered on Monday as the Senate’s approval of a massive new relief package revived the value rotation.

Senators voted along party lines on Saturday to push a $1.9 trillion stimulus plan closer to President Joe Biden’s desk. The package is expected to receive a final House vote on Tuesday, giving Democrats time to enact a supplement to federal unemployment benefits before the current boost expires on March 14. The package also includes $1,400 direct payments, aid for state and local governments, and funding for vaccine distribution.

The package is widely expected to accelerate economic growth and lift inflation. The bill’s Senate vote renewed investors’ moves out of growth stocks and Treasurys and into riskier sectors more likely to benefit from broad reopening. Rising yields cut into tech stocks’ appeal on Monday and cyclical stocks gained.

Here’s where US indexes stood shortly after the 9:30 a.m. ET market open on Monday:

The choppy session followed a broad market upswing to close out last week. Stocks rose on Friday as stronger-than-expected February payroll additions led investors to buy the dip in tech stocks. Government data also showed the unemployment rate falling to 6.2%, though other gauges of labor-market health remain at worrying highs.

Tesla tumbled for a fifth straight session as valuation concerns placed new pressure on pricey stocks. Index giants Apple, Microsoft, and Alphabet also declined.

General Electric gained after The Wall Street Journal reported the company is nearing a deal to merge its jet-leasing arm with AerCap Holdings. The agreement, should it go through, would combine the world’s two largest aircraft financiers.

Bitcoin traded just below $51,000, hovering in an increasingly narrow trading range as investors look for the next driver to boost cryptocurrencies. The token has failed to hold the $52,000 support level since falling from record highs in late February.

Treasurys broadly tumbled, bringing the 10-year yield to an intraday high of 1.613%. The US dollar strengthened against a basket of Group-of-20 currencies.

Spot gold fell as much as 0.93%, to $1,684.72 per ounce, at intraday lows. The precious metal hadn’t traded below the $1,700 support level since June.

Oil prices erased early gains and dipped after a Saudi Arabian crude terminal was attacked by a drone on Sunday. West Texas Intermediate crude sank as much as 1%, to $65.43 per barrel. Brent crude, oil’s international benchmark, fell 0.97%, to $68.69 per barrel, at intraday lows.

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Dow rallies 308 points as traders digest blowout jobs report and rising yields

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Traders work during the closing bell at the New York Stock Exchange (NYSE) on March 18, 2020 at Wall Street in New York City


US stocks rebounded after a sharp sell-off Thursday with the Dow gaining over 300 points following a blowout jobs report while yields rose.

Businesses added 379,000 payrolls in February, the Bureau of Labor Statistics announced Friday. Economists surveyed by Bloomberg expected a gain of 200,000 payrolls. The US unemployment rate fell to 6.2% from 6.3%, according to the government report. Economists expected the rate to drop to stay steady at 6.3%.

The 10-year Treasury yield extended its surge to top 1.61%. 

“The better-than-expected jobs report suggests a healthy economic rebound in progress and will likely add upward pressure on bond yields, as the bond market prices in a stronger economy, which may result in more consumer spending and eventually more inflation,” said James McDonald, Hercules Investments CEO and CIO.

“The biggest risk to the stock market is if the Federal Reserve loses control of bond yields, which have experienced a meteoric rise over the past month. Inflation will continue to exert upward pressure on yields going forward and into the summer months,” McDonald added.

On Thursday, Federal Reserve Chairman Jerome Powell gave little indication that the world’s most powerful central bank was willing to intervene in the recent government bond sell-off.

“I’d be concerned by disorderly conditions in markets, or by a persistent tightening in financial conditions,” he told the Wall Street Journal jobs summit. He said the Fed was keeping an eye on “a broad range of financial conditions,” not just one indicator. Investors took Powell’s words to mean that the Fed was fine with yields rising further. 

Here’s where US indexes stood after the 9:30 a.m. ET open on Friday:

Chamath Palihapitiya cashed out his entire stake in Virgin Galactic for $211 million. The billionaire still indirectly owns 15.8 million shares in Richard Branson’s startup.

Bitcoin is struggling to break past the $50,000 level and hovered below $48,000 Friday morning.

Oil prices rose sharply overnight after the OPEC group of oil producers and its allies unexpectedly agreed to continue limiting supply. West Texas Intermediate crude jumped as much as 2.9%, to $65.66 per barrel. Brent crude, oil’s international benchmark, rose by 3.04%, to $68.78 per barrel.

Gold jumped 0.16%, to $1,703.50 per ounce. 

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Dow plunges 346 points as Fed Chairman Jerome Powell preaches ‘patience’ on inflation spike

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US stocks fell sharply Thursday as investors reacted to comments from Federal Reserve Chair Jerome Powell.

Powell refrained from outlining specific steps to rein in what he described as “disorderly” markets. The 10-year Treasury yield spiked back above 1.5% following his statements, spurring a sharp sell-off in the market’s most highly valued sectors, like tech.

Some investors had been hoping that Powell would signal openness to “Operation Twist,” in which the Fed would sell its shorter-term treasury holdings to fuel the purchase of longer-dated treasury notes like the 10-year, in hopes of containing the spike in interest rates. That did not materialize. 

Powell also said he expects the central bank will “be patient” in waiting for inflation to steadily trend above 2%.

Investors also grappled with tepid labor-market data. Jobless claims rose to 745,000 for the week that ended on Saturday, a slight increase from the prior week’s revised total of 736,000. The reading barely beat economic forecasts of 750,000 claims.

Here’s where US indexes stood at the 4:00 p.m. ET close on Thursday:

The billionaire investor Ron Baron told CNBC on Thursday that despite his long-term bullishness on Tesla, he had sold about 25% of his clients’ stake in the electric-vehicle manufacturer after its position became too concentrated.

The weakness in technology stocks hasn’t stopped Cathie Wood’s Ark Invest from buying the dip in high-flying stocks. Ark’s daily trading disclosures indicated that the firm bought millions of shares of Palantir on Wednesday amid the decline.

SPACs couldn’t escape the carnage in the market this week, falling more than 20% over the past two weeks as represented by the Defiance Next Gen SPAC Derived ETF.

Going public in the US via a special-purpose acquisition company has reportedly caught the interest of Flipkart, the Indian e-commerce giant owned by Walmart.

Gabe Plotkin’s Melvin Capital, which was at the center of the GameStop short-squeeze earlier this year, recouped some of its losses and gained 22% in February.

Oil prices spiked higher, in part due to OPEC’s decision to maintain its previously announced supply cuts. West Texas Intermediate crude jumped as much as 5%, to $64.86 per barrel. Brent crude, oil’s international benchmark, rose by 4.75%, to $67.75 per barrel, at intraday highs.

Gold fell as much as 1.2%, to $1,695.20 per ounce.

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US stocks trade mixed ahead of Fed speech following tepid labor-market data

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Fed chair Jerome Powell is due to speak on Thursday


US stocks were mixed on Thursday as investors continue to grapple with a spike in interest rates and weakness in the high-growth technology sector.

Weekly jobless claims of 745,000 represented a slight increase from the prior week’s revised 736,000 total and just barely beat economic forecasts for 750,000 claims.

Investors will likely be looking for any clues on how the Fed is thinking about the recent rise in interest rates when Fed Chairman Jerome Powell speaks at the Wall Street Journals’ Job Summit this afternoon.

Here’s where US indexes stood after the 9:30 a.m. ET open on Thursday:

Billionaire investor Ron Baron told CNBC on Thursday that despite his long-term bullishness on Tesla, he sold about 25% of his clients’ stake in the electric vehicle manufacturer after its position size became too concentrated.

The weakness in technology stocks hasn’t stopped Cathie Wood’s Ark Invest from buying the dip in high-flying stocks. According to Ark’s daily trading disclosures, the firm bought millions of shares of Palantir on Wednesday amid the decline.

Going public via SPAC has reportedly caught the interest of Walmart’s Flipkart. The Indian e-commerce giant is exploring the possibility of going public in the US via a SPAC.

Gabe Plotkin’s Melvin Capital, which was at the center of the GameStop short-squeeze earlier this year, recouped some of its losses and gained 22% in February.

Oil prices were higher. West Texas Intermediate crude jumped as much as 1.68%, to $62.30 per barrel. Brent crude, oil’s international benchmark, rose by 1.79%, to $65.23 per barrel.

Gold fell 0.23%, to $1,712 per ounce.

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US stocks dip as rising Treasury yields take steam out of market rally

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Traders work on the floor of the New York Stock Exchange shortly after the opening bell in New York, U.S., March 17, 2020.

  • US stocks fluctuated on Wednesday after disappointing labor-market data drove Treasury yields higher and sparked valuation concerns.
  • The US added 117,000 private payrolls in February, ADP said. That came in well below the 200,000 increase expected.
  • The report and sudden jump in yields offset optimism around the US having COVID-19 vaccines for all Americans by May.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

US equities traded mixed on Wednesday as stimulus optimism was offset by rising Treasury yields.

Early strength across stock sectors faded after ADP’s monthly employment report showed February job growth handily missing expectations. The US added 117,000 private payrolls last month, according to the report. Economists surveyed by Bloomberg anticipated a 200,000-payroll gain.

The reading signals the labor market is returning to growth after a nearly stagnant winter, but the weaker-than-expected data highlights just how difficult it will be for the economy to recoup millions of lost jobs.

Treasury yields swung higher soon after the report’s release. The move revived concerns of overstretched stock valuations and saw the tech-heavy Nasdaq composite underperform peers.

Here’s where US indexes stood shortly after the 9:30 a.m. ET open on Wednesday:

The modest decline follows similar weakness in Tuesday’s session. Valuation concerns led tech stocks to weigh on major indices. The Nasdaq composite sank the most, tumbling 1.7% into the close.

ADP’s labor-market data overshadowed new optimism around the nation’s fight against the coronavirus. President Joe Biden announced Tuesday afternoon that the US will have enough vaccine doses for every American by the end of May, pulling forward the key forecast by two months.

The news comes as the rate of vaccination nears 2 million doses per day on average, well above the 1.3 million pace seen in the final week of February, according to Bloomberg data.

Democrats, meanwhile, continue to push the president’s $1.9 trillion stimulus proposal to a Senate vote. The House passed the measure on Saturday, and Senate Majority Leader Chuck Schumer has said he aims to bring the bill to the Senate floor by mid-week. Biden ultimately aims to sign the package into law before expanded unemployment benefits lapse in mid-March.

The package is far from a done deal. Democrats are still haggling over some elements of the bill, including the size of a new supplement to unemployment insurance. The party needs all 50 votes to pass the bill through budget reconciliation, making any last-minute changes risky to the vote’s success.

Lyft rose after the company announced it enjoyed the best week for ridership since the start of the pandemic. Wedbush analysts on Tuesday named Lyft and Uber as top recovery plays, since reopening is expected to revive ride activity.

Bitcoin soared above $51,000 after trading as low as $47,118 on Tuesday. The run-up places the popular cryptocurrency at its highest levels since late February, when it tumbled from record highs.

Spot gold sank 1.7%, to $1,708.43, at intraday lows. The US dollar strengthened against Group-of-20 currencies and Treasury yields rose.

Oil prices shot higher amid the Treasury sell-off. West Texas Intermediate crude gained as much as 2.3%, to $61.10 per barrel. Brent crude, oil’s international benchmark, jumped 2.4%, to $64.18 per barrel, at intraday highs.

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Tech stocks lead losses as US indices pull back from rally

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US stocks were lower on Tuesday with tech stocks leading losses in the Nasdaq and S&P 500 after a strong rally on Monday led investors to profit-taking. 

US and European markets are racing ahead of their real economies, potentially creating bubbles that could pop, China’s banking regulator has warned.  Guo Shuqing, chair of the China Banking and Insurance Regulatory Commission, said US and European markets are racing ahead of their real economies, potentially creating bubbles that could pop. 

Here’s where US indexes stood at the 4:00 p.m. ET close on Monday:

SEC chair nominee Gary Gensler said the agency under his watch would at look ensuring investors get “best execution” for their trades and whether payment for order flow provides that during a virtual confirmation hearing in front of the Senate Banking Committee today. 

Gensler also said the SEC will seek to eliminate fraud and manipulation in crypto markets. 

Several ETF filings made excited investors today. In the latest attempt to launch a bitcoin ETF in the US, the Chicago Board Options Exchange filed an SEC request for approval of VanEck’s bitcoin ETF on Monday. In Canada, Evolve Funds filed a prospectus for an ETF that would track Ether, the world’s second largest cryptocurrency. 

An exchange-traded fund designed to track sentiment on platforms like Reddit, StockTwits, and Twitter will launch on the New York Stock Exchange on Thursday. In a video posted on Twitter on Tuesday, the Barstool Sports founder Dave Portnoy promoted the fund.

Oil prices fell. West Texas Intermediate crude dropped 1.58%, to $59.68 per barrel. Brent crude, oil’s international benchmark, declined by 1.65%, to $62.64 per barrel.

Gold fell around 0.6%, to $1,733.40 per ounce.

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US stocks mixed as investors hit pause on Monday’s rally

Traders work on the floor of the New York Stock Exchange (NYSE) on November 20, 2019 in New York City
Traders work on the floor of the New York Stock Exchange (NYSE) on November 20, 2019 in New York City


US stocks were mixed on Tuesday after a rally on Monday that saw the S&P 500 post its strongest daily gain since June, as the full reopening of the US economy seemed within reach. 

US daily coronavirus cases are falling and on track to be below 40,000 this week after a slight surge last week, according to Fundstrat data. This positive news, along with falling volatility and rising bond prices, likely led Monday’s rally that investors are hoping to continue on Tuesday.

Here’s where US indexes stood after the 9:30 a.m. ET open on Tuesday:

US and European markets are racing ahead of their real economies, potentially creating bubbles that could pop, China’s banking regulator has warned.  Guo Shuqing, chair of the China Banking and Insurance Regulatory Commission, said US and European markets are racing ahead of their real economies, potentially creating bubbles that could pop. 

Zoom jumped 9% after the video platform beat earnings estimates and forecasted strong growth. The company’s revenue forecast for the coming year was above Wall Street expectations.

Bitcoin traded above $48,000 after briefly climbing back above $50,000 for the first time in six days. 

Oil prices were higher. West Texas Intermediate crude jumped as much as 0.54%, to $61 per barrel. Brent crude, oil’s international benchmark, rose by 0.44%, to $63.96 per barrel.

Gold jumped 0.16%%, to $1,726.20 per ounce. 

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Stocks look ‘resilient’ as investors pour $120 billion into equity ETFs in the face of rising rates, BlackRock says

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  • Inflows into equity ETFs of $120 billion are outpacing inflows to bond ETFs, BlackRock said in a note Monday. 
  • Stocks and bond yields generally have been moving higher simultaneously as the US growth picture improves. 
  •  Value and cyclical stocks are finding favor among investors, said the asset manager. 
  • Visit the Business section of Insider for more stories.

Inflows into the equity market are strong despite the spike up in rates as investors respond to economic growth prospects by embracing risk and not staging a “taper tantrum”, BlackRock said in a note Monday.

Equity exchange-traded funds have raked in $120 billion so far this year, outpacing inflows into fixed income ETFs by 4:1, according to iShares data outlined by Gargi Chaudhuri, head of US iShares markets and investments strategy at BlackRock.

That rush of investor cash into equities has taken place at the same time that Treasury bond yields have made notable moves higher, including a jump past 1.5% on the 10-year yield last week.

“That’s not because the stock and bond markets have become untethered, but rather because rates are moving for the right reason: stronger U.S. growth,” wrote Chaudhuri in the note, describing equities as “resilient”. 

Economists have broadly been increasing their forecasts for economic growth as vaccinations to prevent COVID-19 continue to accelerate. Meanwhile, House representatives in Washington last week passed a proposed $1.9 trillion stimulus bill, sending it to the Senate for approval. The US economy in 2021 could grow by the most in decades, said John Williams, president of the Federal Reserve Bank of New York, last week.  

“Unlike previous bouts of rising rates (like the Taper Tantrum of 2013), equity investors have generally responded with risk-on reallocations into pro-cyclical exposures this time around,” said Chaudhuri.

The response by investors could also be explained by real rates remaining “extremely accommodative” at around -70 basis points after the recent rise, she added. Real interest rates exclude the effects of inflation.

ETFs skewed towards value and cyclical stocks will keep benefiting as rates continue to rise and the yield curve steepens, Chaudhuri said, “with over $8 billion of ETF inflows to the value factor corroborating this view.” The inflows of $8 billion represent nearly as much as the previous six months combined, BlackRock said.

Meanwhile, earnings forecasts for 2021 and 2022 should increase through the spring and summer, “further cushioning in the impact of the rise in Treasury yields,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a Monday note.

Shepherdson said the spread between Treasuries and the S&P 500 earnings yield recently fell to 115 basis points after widening by 363 basis points at the peak.

“A narrower spread is no guarantee of future equity gains, but it ought to provide of measure of comfort,” he wrote.

This article and headline has been corrected from an earlier version that said $8 billion has flowed into ETFs this year. That figure refers to inflows into value stock ETFs. The correct figure for year-to-date inflows into ETFs is $120 billion. 

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