The ten-year treasury yield hit one year high at 1.6% on Friday, just after President Biden signed the $1.9 trillion stimulus package into law. Some are arguing that this is a new equilibrium for a healthy U.S. economy; others are concerned that inflation is on the rise. The rest of the market was mixed as the Dow Rose on open and the S&P fell. The bigger story is tech stocks, as the Nasdaq fell over a percentage point on open. Some are pointing the fingers at increased regulation in China as tighter regulation affects the whole sector. However, others believe it’s the increase in bond yields that point to the reason for technology faltering. Inflation erodes future cash flows and if the Fed raises rates in the short run that could limit growing companies' access to cheap liquidity. Meanwhile, vaccine companies did well among the news of increased effectiveness in the U.K.
FINSUM + Magnifi: The bond market is signaling future inflation but we don’t expect major changes from the Fed next week in response. Even market projections are well within the Fed’s tolerance zone, this may be good news for sliding tech funds. The bigger question is if the fall in tech has to do more with rates, such as the argument about regulation above. We think this is a stretch.
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