The stock market looks set for a higher open Wednesday morning as lower bond yields ahead of the release of the Fed minutes revive interest in Amazon.com (AMZN), Apple (AAPL), and together tech stocks.
The Dow Jones Industrial Average has ticked up 18 points, or 0.1%, while the S&P 500 has advanced 0.2%, and the Nasdaq Composite has gained 0.6%. The 10-year Treasury yield has dipped 0.064 percentage point to 1.306%.
That decline in the 10-year Treasury yield certainly has everyone’s attention. It was just a few months ago that the yield was near 1.75% and everyone was talking about it hitting 2%–or even higher. No longer. Now, the big question seems to be what the falling yield portends. Slowing growth? Risk off? Nothing at all? It’s certainly hard to know. But one thing is clear: Treasuries are suddenly in demand.
“The overnight price action confirmed Tuesday’s rally with an impressive 2.15x the normal trading volumes and half of the flows in the 10-year sector,” writes BMO’s Ian Lyngen. “This concentration of activity in the ‘benchmark of all benchmarks’ reflects a move that is about Treasuries as an asset class as opposed to any policy nuance in curve shape or reflation versus reopening optimism. Reading these particular tea leaves is further complicated by the fact the move hasn’t been the classic flight-to-quality triggered by a meaningful correction in risk assets that one might have anticipated given the magnitude of the decline in US rates.”
Not at all. While the drop in yields has caused investors to give up on the cyclical trade, it certainly has been good for big tech. Amazon.com hit an all-time high on Tuesday after languishing for nearly a year, while Apple looks not far behind. Amazon is up 0.8% in premarket trading, while Apple has advanced 0.9%.
That makes sense. If growth is slowing, investors want to own companies that can grow no matter what. And lower yields can make future cash flows worth more in the discounted cash-flow models that analysts use to value stocks. Until Treasury yields rise again, don’t expect that outperformance to change.
Here are five stocks on the move Wednesday:
Oasis Petroleum (OAS) has climbed 3.5% after getting upgraded to Outperform from Sector Perform at RBC Capital.
Boston Beer (SAM) has risen 3.3% after getting upgraded to Outperform from Neutral at Credit Suisse.
Sunnova Energy International (NOVA) has gained 3.9% after getting upgraded to Strong Buy from Outperform at Raymond James.
Masco (MAS) has dropped 1.6% after getting cut to Underweight from Neutral at JPMorgan.
Write to Ben Levisohn at firstname.lastname@example.org