Displaying items by tag: stocks

Tech stocks had a big fall this week, but it more importantly it was the concentration of tech stocks that hedge funds loaded up on that took the biggest tumble. For instance, Farfetch Ltd. and Snowflake Inc. faced their largest drops since March. Hedge funds have been bullish on growth stocks and the high value/low income stocks set record holdings dating back to 2002. Driving tech’s downfall are rate hikes being priced into yields and undermining stocks hinging on future cash flows, like tech.

FINSUM: Tech stocks are more fragile than ever because profits are dwindling after the pandemic boost, and future rate hikes could cause serious tech blowback.

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Treasury yields have been on the climb as of late. The 10 year Treasury is up as much as 30 basis points since mid September, and that climb has many dividend investors worried as to the value of the stocks they hold. Most income investors see rising yields challenging the value of income stocks, causing them to fall, but in the 15 times in the post war era that the 10-year has risen 1.5% from its low, the S&P grew by 12% annualized in this stretch. What this current Treasury climb has in common with its predecessors is inflation. The latest PCE posted a 30-year record, and that is being priced into Treasuries, which is eroding the traditional income stream. With realized gains in Treasuries lower than the nominal yields driving headlines, dividend investors might not need to be worried about stock valuations sinking. 

FINSUM: If yields were being driven by growth factors, we might see the more traditional relationship between interest rates and asset prices, but an inflation-driven cycle might not push investors away from dividend equities.

Monetary policy is diverging in emerging markets with some countries keeping policy rates low and others beginning to tighten, and investors are beginning to make a ruling. Countries like Russia, Columbia and South Korea all experienced currency appreciation due to tighter policy, and certain investment classes are being rewarded. Bond markets are signaling a yield curve inversion in Russia, pricing in future rate hikes, but this has been okay for oil exports. While at the other end, Turkey saw its yield curve climb and its currency—the lira—perform poorly in October. There were mixed signals from Brazil, where the fiscal policy signaled lots of public spending. The monetary policy started to tighten to curb inflation, and as a result, markets punished the Brazilian real.

FINSUM: There are diverging schools of thought globally as to how to respond to the combination of the world’s energy crisis and the lingering Covid-19 pandemic.