Main financial assets discussed:
- Inflation
- Interest rates
- Treasury yields
- Medical Properties Trust (MPW)
- S&P 500 (SPY)
Top 3 key points:
1. Negative real rates have been the norm for the past two decades, but currently, we likely have positive real rates. It is important to use the right measurement periods to evaluate real rates accurately.
2. Inflation should be defined more precisely, and the use of trailing data for housing in inflation indexes can lead to underestimation or overestimation of market price changes.
3. The Federal Reserve may raise rates again, driven by the desire to maintain a tough image and the market's optimism about a no-recession scenario. However, strong real economic growth is unlikely.
Recommended actions: **Hold**
### Summary
Wharton finance professor Jeremy Siegel believes that increased productivity will prevent a resurgence in inflation in the US.
### Facts
- 💰 Wharton finance professor Jeremy Siegel is not worried about inflation rebounding in the US, despite the signs of a resilient economy.
- 💼 GDP is expected to grow 5.8% over the third quarter, according to an estimate from the Atlanta Fed.
- 💼 Job growth and wage growth remain strong, with the US adding 187,000 payrolls and hourly earnings up 4.4% year over year in July.
- 💼 The recent improvement in statistics is attributed to a turnaround in productivity, which was poor last year.
- 💼 Siegel believes that the bounce-back in productivity will keep inflation in check and justify higher wages.
- 💼 However, other experts, like BlackRock, are more skeptical about the path of inflation.
- 💼 The Fed remains concerned about inflation and is open to more tightening measures.
- 💼 Stocks have slid as investors bet on the Fed hiking rates before the end of the year.
📉 Money managers who loaded up on US government bonds as a bet against recession are now facing subpar returns and a deepening selloff as Treasury yields rise.
📉 The annual return on US government bonds turned negative last week as Treasury yields reach a 15-year high, suggesting that interest rates will remain elevated and the economy can handle it.
📉 Bob Michele, CIO for fixed income at J.P. Morgan Asset Management, remains undeterred and is buying every dip in bond prices.
📉 Other prominent money managers, including Allianz Global Investors, Abrdn Investments, Columbia Threadneedle Investments, and DoubleLine Capital, believe that the impact of Federal Reserve rate hikes is just starting to be felt by the economy and predict a recession.
📉 Fund managers are making adjustments to duration to hedge their positions, with some shortening duration while others maintain overweight positions.
📉 Historical patterns suggest that rate hikes often lead to slumping economies, but it remains uncertain whether yields will follow the same pattern this time.
📉 The borrowing needs of wealthy economies and the flood of debt issuance may lead to higher yields.
📉 Despite the current environment, some funds that took short bond, long stock positions have faced significant drawdowns, indicating that rates may remain elevated.
📉 J.P. Morgan's Michele is confident that bond yields will fall once the Fed finishes its tightening cycle, even before the first rate cut.
### Summary
- European stocks rebound after a drop last week, while bond yields rise ahead of the Fed's Jackson Hole event.
- China's smaller-than-expected rate cuts and weak economic data disappointed investors.
### Facts
- 📈 European stocks edge higher after last week's rout.
- 📉 China stocks hit a 9-month low as rate easing underwhelms.
- China's central bank trims its one-year lending rate by 10 basis points, while leaving its five-year rate unchanged.
- Expectation remains for further stimulus from China.
- Asian shares decline due to disappointment, with Chinese blue chips falling to a nine-month low.
- Energy companies outperform as oil prices rise.
- Oil prices edge higher after a seven-week winning streak.
- Bond market sell-off leads to higher government borrowing costs.
- U.S. Treasury yields continue to rise, with the 30-year yield touching a fresh 12-year high.
- The U.S. Federal Reserve's Jackson Hole conference is the key event for the week.
- Markets anticipate that Fed Chair Jerome Powell will address rising yields and strong economic data.
- Polls indicate that a majority of analysts believe the Fed is done hiking rates.
- Traders bet on a just under 40% chance of a final Fed hike by November.
- U.S. dollar trades flat after five weeks of gains.
- Gold prices affected negatively by the rise of the dollar and yields.
- Prices for liquefied natural gas (LNG) supported by a potential strike at Australian offshore facilities.
- Dutch payments processor Adyen's shares drop amid concerns over weak earnings.
- Earnings from Nvidia will be closely watched.
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Surging U.S. Treasury yields are causing concern among investors as they wonder how much it will impact the rally in stocks and speculative assets, with the S&P 500, technology sector, bitcoin, and high-growth names all experiencing losses; rising rates are making it more difficult for borrowers and increasing the appeal of risk-free Treasury yields.
The S&P 500 and other major indices are showing bearish signals, with potential for a significant drop, while the dollar is expected to maintain its upward trajectory and strong economic data could lead to a breakout in interest rates. Additionally, Meta's stock is on a downward trend and the KBW NASDAQ BANK Index is at risk of further decline.
Concerns of a stock market crash are growing as economists await the release of the second-quarter GDP report, which could provide insight into the impact of the Federal Reserve's rate-hike campaign and future monetary policy changes. The report may have a significant effect on equity markets, which have been sensitive to economic data releases this year.
Investors are speculating about the likelihood of a recession after recent data showed a decline in job openings, and Key Advisors Wealth Management CEO Eddie Ghabour believes that the market is not prepared for a recession and it could bring about significant volatility. Ghabour highlights factors such as the JOLTS data, earnings season results, and housing market data to support his recession forecast. He also mentions concerns about rising inflation and its impact on the bond market. Ghabour predicts that a recession could lead to a double-digit drop in equity markets and suggests buying the long end of the Treasury curve as a top trade if a recession occurs.
U.S. Treasury yields rise as investors await jobs report for insight into the economy and Fed's monetary policy decisions.
Summary: The stock market shows signs of a rally, with major indexes surpassing the 50-day line and Treasury yields decreasing, growth stocks are leading, and software companies like Salesforce, MongoDB, and CrowdStrike reporting positive earnings; meanwhile, Amazon and Shopify announce a deeper partnership, and Tesla unveils an upgraded Model 3 while also lowering prices. Additionally, a near-perfect jobs report and tamed inflation data suggest that the Fed may not continue with rate hikes.
Stock markets showed signs of improvement last week, fueled by hopes of a Goldilocks economic scenario, despite downward revisions in Q2 GDP growth and a slowdown in housing prices, while robust hiring and a decline in wage growth raised concerns about a cooling job market. The strength of U.S. consumers and the moderation of the Consumer Confidence index are factors that could influence the Federal Reserve's decisions on inflation, with investors advised to rely on trustworthy data and analysis. Noteworthy upcoming earnings and dividend announcements include Zscaler, Gitlab, GameStop, C3ai, American Eagle, DocuSign, and Kroger. Key economic reports this week will focus on Factory Orders, ISM Services PMI, and Q2 Non-Farm Productivity and Unit Labor Costs.
Treasury yields are on the move and investors should pay attention to where they might be headed next.
Analysts at BMO and UBS predict that the yield on the 10-year Treasury will surpass the S&P 500 earnings yield, indicating a potential fall in stocks and a rise in bond prices.
Stock indices finished today’s trading session in the red, with the Nasdaq 100, S&P 500, and Dow Jones Industrial Average all falling. The technology sector was the session's laggard, while the utilities sector was the leader. The U.S. 10-Year Treasury yield increased, and the Atlanta Federal Reserve's latest GDPNow reading estimates that the economy will expand by about 5.6% in the third quarter. The Federal Reserve released its Beige Book report, noting a tourism boom but slower spending in other areas. The ISM Non-Manufacturing Purchasing Managers' Index came in higher than expected, and mortgage applications fell to their lowest level since 1996. The U.S. trade deficit widened less than expected in July. U.S. stock futures inched lower, and European indices trended lower. Asia-Pacific markets were mixed.
Investors are becoming increasingly nervous due to concerns about the Fed potentially increasing interest rates, as well as rising 10-year interest rates and the VIX, which may put pressure on stocks; however, there are also positive factors emerging, such as improving S&P 500 profit estimates and a shift away from data dependence by Fed officials, which suggests a better finish to September is probable.
The US economy is facing a looming recession, with weakness in certain sectors, but investors should not expect a significant number of interest-rate cuts next year, according to Liz Ann Sonders, the chief investment strategist at Charles Schwab. She points out that leading indicators have severely deteriorated, indicating trouble ahead, and predicts a full-blown recession as the most likely outcome. Despite this, the stock market has been defying rate increases and performing well.
Summary: Rob Isbitts and Matthew Tuttle discuss the current market conditions, including the bearishness of major indexes, the performance of regional banks, the high 10-year rate and oil prices, and the impact of economic data. They also touch on topics such as market volatility, the housing market, and the performance of the NASDAQ compared to the rest of the market.
Michael Contopoulos, director of fixed income at Richard Bernstein Advisors, discusses rising interest rates, the Federal Reserve's future actions, the current state of the economy, and other related topics on 'Fast Money.'
Investors are focusing on the release of economic reports on GDP and inflation as they evaluate the Federal Reserve's stance on interest rates and its efforts to cool down inflation. Metal prices have slipped due to concerns over global demand and the economy, and the risk of a government shutdown is also adding to the bearish sentiment. Earnings reports from various companies and core PCE inflation data are expected in the week ahead.
Mounting fears of rates staying elevated for longer sent jitters through global risk assets, pushing U.S. Treasury yields to a peak not seen since the early stages of the 2007-2008 financial crisis and the dollar to a 10-month high.
Michael Santoli, senior markets commentator at CNBC, discusses the outlook for the fixed income market, the state of the economy, and the stock market. He notes that the bond market is starting to register the Federal Reserve's plans to keep rates higher for longer, and that real yields are increasing due to higher inflation expectations and concerns over the size of current federal deficits and Treasury issuance. Santoli also suggests that it is still too early to fully understand the impact of artificial intelligence on productivity gains, and that the recent uptick in headline inflation is not expected to change the Federal Reserve's stance. He also notes that the stock market has been range-bound and indecisive, with some pockets of weakness in consumer cyclicals, but that the market is still pricing in somewhat benign economic conditions. Santoli highlights the concentration of the market in a few mega-cap growth stocks and the undervaluation of small-cap stocks, and discusses the outlook for the 60/40 portfolio in light of higher bond yields.
The recent surge in bond yields, with 10-year Treasury yields hitting levels not seen in over 15 years, is impacting the stock market as investors shift their focus to safer bond investments, which offer higher yields and less volatility than stocks.
The major stock indexes are expected to open lower as the 10-year Treasury yield hits a 16-year high, with investors monitoring employment data for potential impact on interest rates; meanwhile, stock futures in Asia and Europe slumped as the Federal Reserve's message of higher interest rates reverberates worldwide.
The recent surge in U.S. government bond yields, with prices falling, has raised concerns about the stability of the bond market and the economy, potentially leading to more bank failures and market upheaval.
Pre-market futures are down as the stock market continues to struggle, with the Dow, Nasdaq, and S&P 500 all showing declines, while the 10-year bond yield remains high and the inverted yield curve persists. Job openings are expected to be flat in the JOLTS report for August, reflecting a decline from pre-pandemic levels, and job quits are at a 2.5-year low, indicating a decrease in employee confidence. This week's jobs data will provide further insights into the state of the economy, with interest rates and future Fed decisions being influenced by the upcoming Q3 earnings season.
The article discusses the recent rise in Treasury yields and explores the positive aspects of higher bond yields.
Concerns surround the upcoming release of U.S. payrolls data and how hawkish the Federal Reserve needs to be, as global markets experience a period of calm following a tumultuous week that saw Treasury yields rise to 16-year highs, crude oil prices drop, equities decline, and the yen strengthen. Japanese government bond yields are also causing concern, as investor sentiment towards the Bank of Japan's stimulus remains low.
JPMorgan Chief Market Strategist predicts a recession and discusses the Federal Reserve's stance on interest rates and the performance of mega-cap versus mid-sized stocks.
Market observers are concerned about a sharp jump in Treasury yields similar to that of the 1987 crash, and Saxo Bank's chief investment officer Steen Jakobsen suggests that investors reduce risk by increasing cash balances, hedging portfolios, rotating into short-term bonds, favoring defensive sectors over cyclicals, and avoiding mega-cap stocks.
Investors are awaiting the jobs report to determine the Federal Reserve's next move on interest rates, with wage growth and revisions to previous monthly totals being key factors to watch, amidst indications that the economy is less sensitive to rising interest rates due to lower household and corporate debt levels.
The rise in Treasury bond yields above 5% could lead to a more sustainable increase and potential havoc in financial markets, as investors demand greater compensation for risk and corporate credit spreads widen, making government debt a more attractive option and leaving the stock market vulnerable to declines; despite this, stock investors appeared unfazed by the September jobs report and all three major stock indexes were higher by the end of trading.
Long-term bond yields have surged as the Federal Reserve reduces its bond portfolio and the U.S. Treasury sells debt, contrary to the expectations of Wall Street and investors worldwide, but a research paper written by a University of Michigan student six years ago accurately predicted this scenario.
Matthew Tuttle and Rob Isbitts discuss the recent activity in the bond market and its impact on various sectors, highlighting the importance of interest rates and the absolute level of the 10-year Treasury.
The latest U.S. Jobs Report shows 336,000 new jobs added in September, exceeding expectations and indicating a strong economy that may lead to another rate hike from the Fed. Higher Treasury yields may result in more volatility in stocks and impact sectors such as mortgages and finance. However, this may also present attractive buying opportunities in beaten-down market sectors. Investors should conduct solid research and diversify their portfolios.
Investors' nerves were settled by dovish remarks from Federal Reserve officials, suggesting that rising yields on long-term U.S. Treasury bonds could have a similar market effect as formal monetary policy moves, potentially reducing the need for further rate hikes.
U.S. stocks rise as Treasury yields fall and Federal Reserve officials provide favorable commentary, with the Nasdaq Composite leading gains.
Summary: U.S. stocks rose as Treasury yields fell and oil prices eased, while Europe's Stoxx 600 index soared, Samsung is expected to report a 78.7% drop in profits, the IMF revised its forecasts for the U.S. and euro zone, and a former head of Alameda Research testified that the company committed fraud, billionaire hedge fund manager Paul Tudor Jones predicts a recession and a 12% stock market slump, and falling Treasury yields provided relief to stocks.
Investors are closely monitoring the bond market and September CPI data to determine the Fed's stance on interest rates, with Seema Shah of Principal Asset Management highlighting the circular nature of market reactions to yield spikes and their subsequent declines. She suggests that while there are concerns about upward momentum, the equity market will find comfort in a continued drop in yields and could remain range-bound for the rest of the year. Diversification is recommended as the market narrative remains unclear, and investors may consider waiting until early 2024 for greater clarity on the economy and the Fed's actions.
The U.S. stock market is currently trading at a discount to fair value, and Morningstar expects rates to come down faster due to optimism on inflation; strong growth is projected in Q3, but the economy may slow down in Q4, and inflation is expected to fall in 2023 and reach the Fed's 2% target in 2024. The report also provides outlooks for various sectors, including technology, energy, and utilities, and highlights some top stock picks. The fixed-income outlook suggests that while interest rates may rise in the short term, rates are expected to come down over time, making it a good time for longer-term fixed-income investments. The corporate bond market has outperformed this year, and although bankruptcies and downgrades may increase, investors are still being adequately compensated for the risks.
Bond market strategists are maintaining their predictions that U.S. Treasury yields will decrease by the end of the year and that 10-year yields have reached their peak, despite recent sell-offs and a strong U.S. economy.
This article provides an overview of the companies to watch during the third-quarter earnings season, along with information about upcoming economic data releases.
Treasury yields rise and stock struggle as positive economic reports support the argument for the Federal Reserve to maintain higher interest rates for a longer period of time.
Investors are focused on Fed Chair Jerome Powell's upcoming speech, as bond yields rise and data points to a strong economy, while Wall Street indices open lower; Netflix and Tesla report strong and weak earnings respectively; third-quarter earnings season continues with several companies reporting; and oil prices cool after previous session's gains.
According to Allianz Chief Economic Advisor Mohamed El-Erian, the impact of higher Treasury yields and the Federal Reserve means freezing the housing market, higher borrowing costs for households and businesses, and a lack of stability in the bond market, urging for greater vision from the Fed as the U.S. economy faces points of inflection.
The surge in bond yields is causing losses for investment funds and banks, pushing up borrowing costs globally and impacting stock markets, while the dollar remains stagnant and currency traders predict a recession on the horizon.
Ten-year Treasury yields surpassing 5% means higher interest rates for mortgages and car loans, putting a strain on the US economy, but despite the warning signs, the US economy still appears to be growing with the S&P 500 up 10% this year and the Nasdaq rallying over 20%.
The bond market is experiencing a significant resurgence with soaring yields, raising concerns about the impact on the economy, inflation, consumer loan rates, and trade flows. The Federal Reserve is closely monitoring the bond market, as higher yields can help quell inflation, but also increase costs and limit business activity. The bond market plays a critical role in financing government debt, and its power and influence cannot be ignored.
