The Right Direction

“The bond market is reflecting, I think, the strength that we’ve seen in some of the recent data,” Loretta Mester told CNN Friday. “Today’s employment report shows that things are still moving in the right direction.”

US equities moved “in the right direction” too, likely spoiling a hodgepodge of pre-cooked bearish headlines in the process.

That’s not to lampoon those of a bearish persuasion. It’s just to say that some folks likely had to tweak or otherwise scrap their filler material after shares traded sharply higher into the weekend. The S&P started the week with a 2.4% gain and ended on a similarly ebullient note. The distribution of daily outcomes is becoming quite pronounced (figure below).

This week was all about rates — again. In addition to Goldman, TD and SocGen hiked their year-end 10-year forecasts. Call it “mark-to-market.”

“The forceful year-to-date rise in bond yields is prompting us to revise our forecast profile,” SocGen’s Subadra Rajappa said. “The broad drivers for higher yields remain in place, but the largesse of the US fiscal stimulus and its impact on inflation expectations have moved the goal posts,” she added, noting that “we now expect the 10-year UST yield at 2% by year-end… consistent with Bund yields turning positive by Q3 and ending the year around 0.10%.”

US yields moved sharply higher following a blockbuster February payrolls report Friday, but eventually gave it back as foreign real money stepped in. 10-year yields hit 1.624% at the highs. Dip-buying notwithstanding, 1.55% (where the week ended) was still near the high-end of the weekly range.

Lack of pushback from the Fed (notably Jerome Powell on Thursday) was cause for some consternation among equities, but that was forgotten (or at least forgiven) on Friday.

The rebound in big-cap tech was dramatic. Although the Nasdaq 100 still logged a weekly loss (its third consecutive), Thursday’s dive into correction territory was apparently enough to leave “bargain” hunters salivating (and the scare quotes around “bargain” are there for a reason).

Amusingly, the index still traded at roughly 26X coming into Friday. Apparently, that was just too “cheap” to pass up.

By the time it was all said and done, the S&P (which is, of course, heavily weighted towards the big-cap tech names) ended up logging a gain for the week. Small-caps trimmed their weekly decline to a mere 0.5%.

If you were brave enough to buy the energy ETF during the darkest days of the downturn, you’re probably pretty pleased with yourself about now. It managed a 10% gain this week alone. Over the past six months, it’s outpaced the Nasdaq ETF by a huge margin.

Energy shares obviously benefited this week from OPEC+’s surprise decision to keep the oil market on a tight leash. The Saudis want to be “certain the glimmer [they] see ahead is not the headlight of an oncoming express train,” to quote Prince Abdulaziz bin Salman.

As for Tesla, it’s been a rough ride — not necessarily what you want from an EV, I imagine, although I’ll confess I’ve never owned one.

As Bloomberg observed just before noon on Friday, the market cap loss for Tesla this week “exceed[ed] the entire individual market capitalizations of about four-fifths of companies in the S&P 500.”

At its peak, Tesla’s market cap was $837 billion. By Friday afternoon, that number was just $596 billion.

Panning quickly back out to the macro level, AxiCorp’s Stephen Innes wrote that “the stronger-than-expected [jobs] print demonstrates once again that the US economy is poised to accelerate as the risk from COVID recedes.”

As far as the Fed’s refusal to talk down yields (and thereby the resurgent greenback), Innes wrote that “even if bonds and currency markets aren’t buying what the Fed is selling, at least in the Fed’s eyes, it doesn’t matter too much provided ‘Curvemageddon’ doesn’t hit inside of 2022.”