But by Thursday morning, the mood had changed. Investors dumped U.S. government bonds, sending yields on the standard ten-year treasury to 1,738%, the highest level in more than a year. Nasdaq Composite futures have fallen sharply, suggesting that technology stocks may be ahead of another decline.
The shift shows the spiritual tug-of-war taking place across the market. While many investors want to see an economic recovery later this year, fears about adverse side effects, namely inflation, are mounting, which could force the Federal Reserve to raise interest rates or reduce bond purchases earlier than expected.
“Strong economic growth – the kind we’ve been expecting since last summer’s narrows the output gap and leads to inflationary pressures, ‘Bank of America’s equity strategies told clients on Wednesday. “No surprises there.”
The economic picture brightens. Thanks to President Joe Biden’s $ 1.9 billion stimulus package and the introduction of vaccines, Fed officials now estimate that US gross domestic product, the broadest measure of economic activity, will climb 6.5% this year, more than the 4 , 2% predicted in December.
Meanwhile, the unemployment rate is expected to fall to 4.5% by the end of the year. By 2023, the unemployment rate could be at 3.5% again, where it sat before the pandemic.
We are not there yet, Powell admitted. In the report of the Labor Department on Thursday, another 700 000 claims for unemployment benefits are expected for the first time. This would be the lowest number of claims since the pandemic began, but still well above the 200,000 claims normally registered before the virus arrived.
The Fed chairman stressed that the central bank plans to examine the latest data when making decisions instead of relying on projections.
“We have said that we will continue to buy assets at this pace until we see significant further progress,” Powell said. “And that’s real progress, not forecasting.”
Nevertheless, some on Wall Street are asking whether the Fed’s choice to sit tight – possibly until 2023 – could mean that it will be forced to act more dramatically, fearing that inflation may remain longer than officials think.
“Right now, it’s all right if the Fed’s assumption that any inflation is of a provisional nature is proven correct,” Jim Reid, Deutsche Bank, told clients on Thursday. “However, if the market at some point doubts the ephemeral nature of inflation, the fun and games begin.”
The Bank of America team is more sanguine. “There’s always some reason to complain since the beginning of this bull market,” the strategist said. However, they believe that investors can climb the ‘wall of worries’ as markets abound with cash, and that the growth of corporate earnings seems to be jumping. Their advice? “Stay right.”
SPAC fundraising is insanely 2,000% higher than a year ago
Now the world’s largest asset manager is expressing concern, reports my CNN business colleague Matt Egan.
“If you look at the SPAC market, there are some attractive new ventures and new technologies that are financing effectively,” BlackRock CEO RickRieder told CNN Business. “And then there are some who have no sense.”
Rieder, BlackRock’s chief investment officer for global fixed income, urged investors to be careful before entering this space.
“You have to be really selective about where you go and not just hop on that train because it’s gone crazy,” he said.
Remember: special-purpose procurement companies – or shell companies that exist simply to make private entities public – have become the rage on Wall Street. Even celebrities like Alex Rodriguez and Jay-Z introduced SPACs to take advantage of the trend.
According to Dealogic, US-listed SPACs have raised $ 83.1 billion so far this year. This is 2.031% higher than the same point last year. As of 2021, the SPAC market of 2021 exceeded the total of $ 82.6 billion.
One concern is that the amount of SPAC money being chased for merger candidates could exceed the number of higher-quality private enterprises.
Rieder pointed out that some SPACs are made public with high valuations of 40 or even 50 times their revenue. “There’s no way you can ever grow in it,” he said.
Volkswagen shares soar as carmaker Tesla takes over
The termination of Tesla’s rule would be a major milestone in Volkswagen’s conversion to a power station for electric vehicles. The company, badly burned by its diesel emission scandal in 2015, is investing € 35 billion ($ 42 billion) in electric vehicles, setting its future on new technology and a dramatic shift in fossil fuels.
“Tesla is not just about electric vehicles. Tesla is also very strong in software. They really drive the car as a device. They are making good progress with the autonomous thing,” Volkswagen CEO Herbert Diess told Julia this week Chatterley, CNN, said. “But yes … we’re going to challenge Tesla.”
UBS analysts told reporters last week that investors did not appreciate the speed with which Volkswagen was winning Tesla, and how much money the German company would earn by going ‘all-in’ on electric cars ahead of other established players , including Toyota and General. Motors. The bank increased its target price for Volkswagen shares by 50% to € 300 ($ 358).
Following
Also today: initial U.S. unemployment claims posted at 8:30 p.m. ET.
Come tomorrow: A big week of announcements from the central bank closes with the Bank of Japan.