As banks began to fail in the United States, bond positioning changed. Inflation has been pushed aside as we head towards a recession. Yields plummeted and higher interest rates were no longer priced in. Meanwhile, stock markets are rising.
The Nasdaq 100 Index has risen even as bank stress is expected to curb lending and slow growth at best, and if this trend continues, it will hit its biggest weekly high in four months. Several reasons have been cited for this, including a short-sighted focus on falling interest rates and hedge fund strategies.series ofremedyalso apparently eased anxiety on the 16th.
But other factors may also be at work. This is familiar to anyone who has experienced stock market twists during the coronavirus pandemic. In times of uncertainty, investors seek safety. And investors are once again seeking havens represented by the FAANG stocks of quasi-monopoly technology companies.
Once called the “stay home” deal, the strategy took hold during the lockdown years. About a third of the constituents of the S&P 500 index have fallen in 2020, but the index itself is up 16%. Technology stocks are heavily weighted, especially Amazon.com, Apple and Netflix, which have risen more than 50%.
Bond markets now trying to determine whether a recession or a full-blown credit crisis is the most likely outcome of banking turmoil, suggesting the same dynamics are at work as they were during the lockdown. There is evidence.
Four stocks — Microsoft, Apple, Amazon and Nvidia — accounted for about 60% of the Nasdaq 100 index’s gains since the weekend. Alphabet shares are up 11% this week, adding more than $120 billion to its market capitalization. Microsoft is up 11%, adding more than $200 billion to its market capitalization.
news-rsf-original-reference paywall">Original title:Lockdown Logic Rears Its Head in Stock Rally Running on Nerves(excerpt)
