© Reuters. FILE PHOTO: A sign on Wall Street. is seen near NYSE in New YorkNYSE in New York
By Lewis Krauskopf
NEW YORK (Reuters) – US technology and growth stocks have dominated the market in recent weeks, pausing the turnaround to value stocks as investors assess the trajectory of bond yields and upcoming income reports. Technology was the top performing sector in April, up 8% from a 5% increase in the benchmark index. Major tech-related growth stocks in other S&P 500 sectors such as Amazon (NASDAQ 🙂 Inc, Tesla (NASDAQ 🙂 Inc and Google’s parent Alphabet (NASDAQ 🙂 Inc also gained.
The rise comes after a cycle spanning months, in which technology shares outpaced by stocks of banks, energy companies and other economically sensitive names, have risen sharply. since the breakout in the COVID-19 vaccine late last year. The gains in many of these so-called value stocks have slowed down lately, while the US Treasury price surged again in April following a strong sell-off in the first quarter. This suggests that some investors may have priced in a wave of rapid growth shown in economic data. “Technology and growth are starting to get a little better because people are being a little more cautious,” said Lindsey Bell, investment strategist at Ally Invest. Invest said. “The investors are on hold and watch this … at least until the earnings are in progress.”
One of the main drivers of the shift in the tech sector is the Treasury market, with the benchmark 10-year yield dropping about 15 basis points in April to around 1.6% on Friday.
Higher bond yields are particularly challenging for the performance of tech stocks and other stocks that have high valuations and high expected returns in the future, as increased yields reduce the value of the stock in many standard models. The 10-year yield increased by about 83 basis points in the first quarter.
Chris Galipeau, senior market strategist at Putnam Investments said: “People are probably taking a little deep breath and saying, ‘Okay maybe rates won’t go straight up (2.50%)’ ‘.
6-month chart of the S&P technology sector and the US Treasury 10 years https://fingfx.thomsonreuters.com/gfx/mkt/jznpnaxlkvl/Pasted%20image%201618508231031.png
Stocks of tech companies and other “home-based” businesses could also go up if there was a breakdown in the national vaccination or other problems, investors said. during recovery.
For example, a call by US health authorities this week to halt use of Johnson & Johnson’s (NYSE 🙂 coronavirus vaccine has spurred several home-stay projects and names. The calendar is not related to the economic reopening. Investors also point to the imminent stream of quarterly reports as key to determining market leadership, with Netflix Inc (NASDAQ 🙂 and Intel Corporation (NASDAQ 🙂 among tech companies and big income growth due next week.
Many investors believe that the recent market change is just a pause, with value and equities cyclical due to regaining command after years of lag, when investors get hold of stocks. expect to benefit the most from what the Federal Reserve expects to be the strongest economic growth in nearly 40 years.
“I guess we’ll see more of this internal cycle, where growth pauses and then it comes out and then value pauses and then it continues,” Galipeau said. “I wouldn’t be surprised if that continued for a few years.”
Others have become more wary of the stock market in general. Strategists at BofA Global Research recently released a report listing five reasons to be cautious about stocks, including high valuations and outstanding returns over the past year. The bank keeps its year-end S&P 500 target at 3,800, about 9% lower than current levels. This is up 11% this year.
BofA strategists write: “In the context of increasing sentiment, high valuations and peak stimulus, we continue to believe that the market is overvalued for good news.
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