(Bloomberg) — The world’s biggest bond market remained under pressure after another jumbo-sized sale of Treasuries, with traders looking for clues on whether a turning point is in sight after this year’s selloff.
Treasuries stayed lower after a $70 billion auction of five-year notes “tailed slightly.” The auction was awarded at 4.659%, slightly higher than the 4.655% yield in pre-auction trading at the 1 p.m. New York time bidding deadline — a sign that demand was a touch below expectations.
“Good stats despite small concession,” said Vail Hartman at BMO Capital Markets. “Treasuries were cheapening before the auction on lighter volumes. Since the result, we’ve seen little net change in the follow-through.”
Buoyed by strong economic data and persistent inflation, traders have sought higher yields for holding government debt as they revise down their expectations of Federal Reserve rate cuts for the year, according to Fawad Razaqzada at City Index and Forex.com. Following the big bond auctions, he says investors will shift their attention back to macroeconomics, with key readings on growth and inflation later this week.
“Unless these figures show weakness, there’s a possibility that bond yields may push further higher as investors reassess the likelihood of interest rate cuts,” he noted. “Such a scenario could pose a downside risk for risk assets.”
The S&P 500 halted a two-day rally. Meta Platforms Inc. dropped just hours away from its results. Tesla Inc. surged after chief Elon Musk vowed to launch less-expensive vehicles. The yen weakened beyond 155 per dollar, fueling intervention jitters.
Interest rates staying elevated longer, along with economic uncertainty and geopolitical turmoil have lessened the appeal of some of the stock market’s cheapest strategies.
Investors this month have pulled some $200 million out of value based exchange-traded funds, according to data compiled by Bloomberg Intelligence. In contrast, growth stocks have attracted more than $3 billion in inflows — despite a shaky stock market that’s raised concerns of more downside to come. That diminished interest in cheap stocks comes on the heels of lackluster performances of common value products.
With several high-profile earnings reports this week, Mark Hackett at Nationwide says those figures will further test investors’ comfort.
While the cohort of seven megacaps has done well in the last two years because of their superior earnings-per-share growth relative to the broader market, this advantage could decrease in 2024 and even more significantly in 2025, Hackett noted.
“The Magnificent Seven are not nearly as powerful as they once were, and this broadening of the market is creating pockets of opportunity for the rest of the S&P 500,” he noted. “We see this as a positive development for investors looking to diversify away from the recent market leaders,” he added.
To Katrina Dudley at Franklin Templeton, valuations are fair — therefore companies need to continue to deliver on earnings growth.
“For the market overall, we’ll be watching guidance for the remainder of the year closely,” said Matt Palazzolo at Bernstein Private Wealth Management. “While it’s good to know how companies did from January to March — it’s more important now to have a sense for managements’ expectations for the balance of the year.”
Meantime, a JPMorgan Chase & Co. indicator is flashing a resounding buy signal in US stocks, after it hit a threshold that typically precedes better-than-average gains.
The bank’s US Tactical Positioning Monitor hit a level that reflects an “attractive set-up” for the S&P 500, according to a team led by Andrew Tyler, JPMorgan’s head of US market intelligence.
The stock gauge has historically gained around 3% in the subsequent 20 days after a similar four-week change in positioning, compared to a roughly 1% gain in all periods, according to the note.
Corporate Highlights:
- International Business Machines Corp. is nearing a deal to acquire software company HashiCorp Inc. for about $35 per share, according to people with knowledge of the matter.
- Boeing Co. Chief Executive Officer Dave Calhoun said the embattled planemaker is making progress toward turning around its manufacturing and that it will hit its mid-decade cash-flow goal, even after reporting a major outflow in the first three months of the year it slows output
- B. Riley Financial Inc.’s auditors signed off on its annual report, while flagging concerns about weak internal controls.
- Amazon.com Inc. and Microsoft Corp.’s investments into artificial intelligence startups will get deeper scrutiny from the UK’s antitrust watchdog.
- AT&T Inc. beat analysts’ estimates for profit in the first quarter as it added more wireless phone customers than expected.
- Biogen Inc. reported first-quarter profit that beat expectations as the biotech giant’s new Alzheimer’s drug Leqembi gained traction and cost cuts took hold.
- Visa Inc. reported a quarterly profit that beat Wall Street predictions as US credit-card spending climbed.
- Humana Inc. pulled its guidance for next year amid mounting pressures in its Medicare business.
- Hasbro Inc. reported first-quarter earnings that beat estimates, a promising sign for the company’s turnaround efforts.
- Mattel Inc. reported a smaller-than-expected first-quarter loss, benefiting from fast sales of its Hot Wheels miniature cars and lower costs.
- Citigroup Inc. turned bearish on Molson Coors Beverage Co., expecting sales trends will weaken as benefits from last year’s Bud Light boycott fade.
- SunPower Corp. will eliminate more than 25% of its workforce as the company copes with a prolonged slump in the rooftop solar business.
Key events this week:
- US GDP, wholesale inventories, initial jobless claims, Thursday
- Microsoft, Alphabet, Airbus earnings, Thursday
- Japan rate decision, Tokyo CPI, inflation and GDP forecasts, Friday
- US personal income and spending, PCE deflator, University of Michigan consumer sentiment, Friday
- Exxon Mobil, Chevron earnings, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.3% as of 1:02 p.m. New York time
- The Nasdaq 100 was little changed
- The Dow Jones Industrial Average fell 0.3%
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro was little changed at $1.0692
- The British pound was unchanged at $1.2449
- The Japanese yen fell 0.2% to 155.10 per dollar
Cryptocurrencies
- Bitcoin fell 2.3% to $64,797.3
- Ether fell 1% to $3,178.65
Bonds
- The yield on 10-year Treasuries advanced five basis points to 4.65%
- Germany’s 10-year yield advanced nine basis points to 2.59%
- Britain’s 10-year yield advanced nine basis points to 4.33%
Commodities
- West Texas Intermediate crude fell 0.9% to $82.61 a barrel
- Spot gold rose 0.2% to $2,325.61 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Alexandra Semenova and Carly Wanna.
