US stocks and bonds rebounded this week, leaving Wall Street’s main stock barometer to a record high, as the latest signs of the country’s economic recovery sparked a shift towards US assets.
Economic reports indicating acceleration improving the labor market and a surge in consumer spending fueled by stimulus measures has boosted foreign and domestic investors’ appetite for US securities.
The rise in stocks and bonds in tandem works against typical market dynamics, but a confluence of factors gave both markets a boost this week, analysts said. The blue-chip S&P 500 stock index gained 1.4% during the period, leaving it up more than 5% from the end of March, which would be its third consecutive monthly gain.
Economically sensitive sectors of the S&P 500 such as energy, finance and industrials have led the way since late January, each with about a fifth up.
“As the economic reopening accelerates in the coming months, we believe the bull market remains on solid footing,” said Mark Haefele, chief investment officer at UBS Wealth Management. “We maintain a cyclical bias and favor consumer discretionary, energy, financials and industrials in the United States.”
The group, which manages the money of the wealthy, on Friday raised its S&P 500 target to 4,400, indicating that it expects the gauge to build on its records and recover another 5% by the next. end of 2021.
This feeling of economic enthusiasm has triggered a heavy downturn in the long term US government bonds during the first quarter of this year. However, the direction of travel has started to change over the past two weeks.
The yield on the 10-year Treasury bill, a key benchmark for fixed income markets, has fallen 0.14 percentage points over the past fifteen weeks to just under 1.6%, marking the largest drop in a two-week period since last summer. . the yield, which moves in the opposite direction of price, had passed 1.77% on March 30.
The recent pick-up in demand has left some investors and analysts scratching their heads, especially since it came even as data released Thursday showed US retail sales surged last month from more in 10 months, while the number of Americans reporting for the first time. jobless benefits fell to their lowest level since the start of the coronavirus crisis. Typically, such positive news would move investors away from this safe haven debt.
However, investors pointed to the surge in foreign demand for Treasuries, which still yield more than many other global peers, as one of the reasons for the strong recovery.
A strong sell-off of 30-year Treasury bonds on Tuesday has helped build confidence in the market since had been worries leading to him on whether investor demand would be sufficient to absorb a large wave of newly issued debt. Investors should closely watch a $ 24 billion 20-year bond auction on Wednesday for more information.
Subadra Rajappa, head of US rate strategy at Société Générale, said the dramatic sell-off in the first three months of this year left the market prone to a sudden rebound. “The immunity of US Treasuries to ever stronger data is proof that positive growth and inflation are priced perfectly,” she said.
“We don’t detect a major change in the message the treasury market is sending us, but neither do we believe that yields are likely to resume an endless ascent as they are roughly in line with their ‘fundamentals’.” , added Roberto Perli. , economist at Cornerstone Macro.