Tuesday's Market Minute: Investors Brace For Another Rotation
The 10-year Treasury yield (TNX) briefly topped 1.5% Monday, its highest level since June. While rising bond yields weighed on big tech stocks within the Nasdaq-100 (NDX) – Alphabet (NASDAQ: GOOGL), Apple (NASDAQ: AAPL), and Nvidia (NASDAQ: NVDA) all closed in the red – the day wasn’t a wash for all the major indices. The small-cap Russell 2000 (RUT) ended up 1.46% higher while the Dow Jones Industrial Average ($DJI) managed a 0.2% gain. There was also a surge in crude oil futures (/CL) that lifted big energy names like Exxon Mobil (NYSE: XOM) and Occidental Petroleum (NYSE: OXY). As of Tuesday morning, /CL is trading near 52-week highs.
Rising interest rates amid elevated inflation are herding investors from growth stocks into more value-oriented names. We’ll hear more on this from Federal Reserve Chairman Jerome Powell today and later this week when he addresses the government. In a prepared speech to the Senate Banking Committee, Powell said he expects inflation to stay elevated for the coming months before moderating, and that, “as the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly due to supply bottlenecks in some sectors.”
In addition to the inflation story that is weakening tech right now, increasing optimism surrounding how the U.S. is bouncing back from the Delta variant of COVID-19 is fueling momentum into the reopening trade. The number of total coronavirus cases are declining, booster shots are on the horizon, and children twelve years and older can now be vaccinated.
The higher energy prices are a testament to the growing demand for travel and a return to pre-pandemic normalcy. While not back to 2019 levels, the weekly figures reported by the TSA for checkpoint travel numbers are well ahead of 2020, which means more people are returning to business travel and going on vacations. Anything could hamper this growing enthusiasm though, like an outbreak in recently opened schools, but in the meantime portfolio diversification is an investor’s best friend.
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