Investors looking for something to blame for the recent stock market swoon need only look at the financial market. The major U.S. stock indexes had their worst weekly performance of the past year last week, with the S&P 500 losing 2.7%. The Dow Jones Industrial Average and Nasdaq Composite lost 3% and 3.3%, respectively. Those losses came as yields rose on higher-than-expected inflation data, with several Federal Reserve officials stressing that prices could hold steady if inflation picks up. front. On Monday, the 2-year US Treasury yield reached 4.8% and reached its highest level since 2007 before easing from those levels. “The recent reset by the equity market feels more like a higher valuation, rather than a [simple] resetting from overbought territory for stocks,” said JC O’Hara, chief market strategist at Roth MKM, in a note to clients on Sunday. “Overall, we believe that this reversal was in order for stocks,” he said in his statement. ” However, higher rates have become a major issue again.” According to this recent trading action, market technics are looking at rates as the key US2Y YTD Mountain US2Y YTD two-year yields in 2023 BTIG chief market analyst Jonathan Krinsky in a ever, we are not sure that we are still at the cut-off point yet,” said Krinsky in a separate statement. This relationship was revealed on Monday, the Dow, S & P 500 and Nasdaq rose that day while the majority of the money available for the Treasury has decreased Stocks or bonds: Who is responsible right? completed 2022 in the red. The S&P 500 had its best January since 2019 with a gain of 6.2%, while the Nasdaq Composite recorded its best January since 2001 with a gain of 10.7%. The Dow also ended the month, adding 2.8%. But enthusiasm faded in February, with the three major averages on pace to end the month. The S&P 500 and Nasdaq Composite lost 2.2% and 0.9%, respectively, in February. The Dow is down 3.4% this month and is down year-to-date. The 2-year and 10-year yields reversed course, moving in February after sliding in January. US10Y YTD 10-year rock in 2023 This back and forth raises questions about who investors should be listening to: the stock market, or bonds. Roth MKM’s O’Hara said new economic data could help inform that decision. The headline personal spending measure, the preferred inflation gauge for the Federal Reserve, came in above economists’ expectations for January. This has fueled fears that the central bank may continue to raise interest rates for longer than some market watchers hope to successfully curb inflation. “Inflationary inflation, as seen in the economic downturn affecting the government’s finances, is back as the market-thinking trader is dead,” O’Hara said. . Each of the three stocks closed Friday down 1% or more following the data. Moving in contrast, yields on the 2-year and 1-year notes, along with those on the 6-month and 3-month notes, jumped. And, while the prices of traditional securities such as the 10-year note and the 30-year bond have yet to reach their 2022 lows, strategist John Roque thinks these levels could be broken soon. “Without the benefit of clairvoyance, I think we’ll soon start hearing consumer complaints about ‘higher prices’ because there’s almost no way in God’s green world that the price you’re paying for pizza will ever go back to being. Roque, head of technical strategy at 22V Research said. Markets looked at the market as the Fed is expected to successfully calm inflation while avoiding a recession, the situation referred to as a “soft landing.” The fixed income market is considered the most pessimistic for the future of the economy, but O’Hara said the recent sell-off in stocks may indicate that thinking is gaining traction. O’Hara said “The stock market understands that the stock market can be right about inflation over time,” O’Hara said. on the cost of channels has had a negative impact a stock markets. Unions continue to worship at the altar of inflation as equity markets begin to question whether their soft idol is real.” ‘We’re buying bonds’ Some investors see recent market performance as an opportunity Steve Eisman, an investor known for calling and profiting from the 2007 housing crisis, said Monday that his favorite trade in the current investment climate is short-term Treasurys. on CNBC’s “Squawk Box.” He also said he is “laddering” Treasury bonds, which refers to the strategy of building a portfolio of bonds at different maturities and then reinvesting as the bonds begin to mature. “We buy bonds, especially Treasurys,” said Eisman, who is a senior portfolio manager at Neuberger Berman. “Only risk-free Treasuries at 4.8[%] it’s a good place to stay. See, customers have different goals. There’s no shame in putting some of your clients’ money into the 4.8%.” — CNBC’s Yun Li and Michael Bloom contributed to this report.
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