Stocks Warily Eyeing the Pace of Rate Hikes

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Stocks bounced around the unchanged line on Thursday, closing off of their worst levels despite a nasty and persistent selloff in Treasury bonds. It was enough to push the 30-year yield above the 3% threshold. That’s a line in the sand many bond market observers — including DoubleLine’s Jeff Gundlach — have warned as the level at which higher rates will act as a major headwind for the stock market.

In the end, the Dow Jones Industrial Average gained 0.1%, the S&P 500 lost 0.1%, the Nasdaq Composite lost 0.4% ahead of big-tech earnings after the close and the Russell 2000 gained 0.3%.

Breadth was negative, with NYSE decliners outpaced advancers by a 1.2-to-1 ratio. There were 131 new lows vs. 88 new highs. The U.S. dollar weakened notably while both crude oil and gold moved higher.

Among the gainers, Nokia Oyj (ADR) (NYSE:NOK) and AT&T Inc. (NYSE:T) gained 13.2% and 4.3%, respectively and they were among the most actively traded. Facebook Inc (NASDAQ:FB) climbed 3.3% to a new high despite reporting a drop in U.S. daily active users amid a shift away from viral cat videos and fake news to focus more on user generated content.

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There was heavy earnings activity after the close, with Apple Inc. (NASAQ:AAPL) beating despite weak iPhone shipments, Amazon.com, Inc. (NASDAQ:AMZN) reporting a big earnings beat on solid AWS results and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) disappointing on earnings. AAPL and GOOG are trading lower after-hours; AMZN is pushing higher, overcoming its cash session losses.

Conclusion

Stocks Uneven As Bond Prices Collapse

The rise in the 10-year yield to a high of 2.77% marks the highest level since April 2014 as energy prices were peaking.

It’s hard to overstate just how important this is as the Janet Yellen era at the Federal Reserve ends and Jerome Powell takes her place. This comes as inflation expectations have been surging, a sign that the market thinks the Fed is losing control by tightening policy too slowly.

Powell has no other choice but to quicken the pace of rate hikes. Otherwise, inflation expectations will only continue to rise before actual inflation materializes. The problem is that the economy is running past full potential and the unemployment rate is near historic lows. And yet, the GDP tax plan is pouring fiscal stimulus gasoline all over it resulting in an estimate for Q1 GDP growth from the Atlanta Fed of 5%+.

Not only will all of this hurt stocks and the economy by raising the cost of credit, but trillions in bond price losses are on the horizon as well.

Check out Serge Berger’s Trade of the Day for Feb. 2.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

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Anthony Mirhaydari is the founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.


Article printed from InvestorPlace Media, https://investorplace.com/2018/02/stocks-uneven-as-bond-prices-collapse/.

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