Summertime: Bond Rallies are Bad

U.S. equity futures are down this morning preopening, from -0.5/-.75% for the NASDAQ, -1.25% for the S&P500, -1.5% for the Dow, and -2% for the small cap Russell 2000. Concerns about U.S. and global economic growth are being stoked by rising COVID-19 cases due to the Delta variant. As one would expect, Treasury yields are lower from 5 to 6 basis points on 10-year treasuries. The U.S. dollar is stronger.

On Friday, US stocks closed out their first weekly loss in four weeks.  Global equities were lower last week, with the Russell 2000 (-5.1%), NASDAQ (-1.9%) and S&P500 (-1.0%).  Most sectors were weaker, with cyclicals and energy (-4.3%) seeing the largest declines, while 7 of 10 sectors lost ground.  While still down almost -3% year to date, 10-year Treasuries rallied last week.  I repeat, long term bond rallies have been overall bad for the overall US stock markets since 2009.  The market wants to see slightly higher trending long term rates.

The CDC has called the recent surge in Covid cases, hospitalizations, and deaths a “pandemic of the unvaccinated.” More than 97% of new hospitalizations from the Delta variant are of people who have not been vaccinated, the agency said. As the Delta variant has spread, the US government is trying to revive a stalled vaccination campaign.

Also, hitting the markets is the continued upswing in negative USA/China rhetoric. Over the past quarter, the Biden administration has rolled out several executive orders and other moves aimed at countering China.  In June, the administration banned U.S. imports of a key solar panel material from China-based Hoshine Silicon Industry Co. over allegations of forced labor in Xinjiang. The day before, the Department of Commerce added five Chinese companies to its Entity List, a trade blacklist.  Just this weekend, the Biden administration, NATO, and the European Union publicly blamed hackers affiliated with China’s main intelligence service for cyberattack on Microsoft Corp. email software this year, part of a global effort to condemn Beijing’s malicious cyber activities. Additionally, the Biden administration has recently asked the Netherlands government to restrict the sale of leading-edge semiconductor equipment technology made by ASM Lithography to China, the most advanced component of advanced semiconductor manufacturing.

The OHFG investment team remains mindful of normal summer seasonally in both the economy and stock markets making for a 5-6.5% pullback possible at any time.

Fridays 7/9/21 Podcast:


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