US equities and bonds rose this week, leaving Wall Street’s major equities barometer at a record high, as the latest signs of the country’s economic recovery caused a shift in US assets.
Economic reports pointing to a rapid improvement in the labor market and a stimulating boost in consumer spending boosted foreign and domestic investors’ appetite for US securities.
The rise in both equities and bonds is contrary to typical market dynamics, but a confluence of factors has boosted both markets this week, analysts said. The blue-chip S&P 500 stock index rose 1.4 percent during the period, leaving it up more than 5 percent from the end of March, which would be the third straight monthly advance.
Economically sensitive S&P 500 sectors such as energy, finance and industry have been at the forefront since the end of January, with about a fifth each.
“As economic reopening accelerates in the coming months, we believe the bull market remains on a solid footing,” said Mark Haefele, chief investment officer at UBS Wealth Management. “We maintain a cyclical bias and prefer American discretionary consumers, energy, finance and industry.”
The group, which manages the money of wealthy individuals, raised its S&P 500 target to 4400 on Friday, indicating that the benchmark will continue to build on its record high and reach another 5 percent by the end of 2021.
This sense of economic enthusiasm caused a sharp decline in long-term U.S. government bonds in the first quarter of this year. However, the direction of travel has begun to shift over the past two weeks.
Yields on the 10-year Treasury note, a key measure of fixed-income markets, have fallen 0.14 percentage points over the past two weeks to just 1.6 percent, the biggest drop in about two weeks since last summer . The yield, which is moving in the opposite direction of the price, reached above 1.77 percent on March 30th.
The recent increase in demand has puzzled some investors and analysts, especially as it became known, as data released on Thursday shows that U.S. retail sales rose the most in ten months last month, while the number of Americans who first submitted. time, unemployment benefits have dropped to their lowest level since the onset of the coronavirus crisis. Such positive news will usually repel investors from this refuge debt.
However, investors have pointed to the rising foreign demand for treasury, which is still producing more than many other global counterparts, as one reason for the sharp rise.
A strong sell-off of thirty years of treasury bonds on Tuesday helped build confidence in the market as there were concerns about whether investor demand would be sufficient to take on a large wave of newly issued debt. Investors are expected to closely monitor a $ 20 billion auction of 20-year bonds on Wednesday for further insight.
Subadra Rajappa, head of the US interest rate strategy at Société Générale, pointed out that the dramatic sell-off in the first three months of this year tended to cause a sudden upswing. “The immunity of US Treasury to ever stronger data is proof that a positive growth and inflation outcome is perfect,” she said.
“We do not see a major change in the message that the Treasury market is sending us, but we would also not think that the yields are likely to resume an endless increase, as it is in line with their ‘fundamental factors’. , ”Added Roberto Perli. , an economist at Cornerstone Macro.