S&P 500 Cuts Losses as Yield Surge Renews Bets on Reflation Trade

Stock Markets49 minutes ago (Sep 24, 2021 03:11PM ET)

(C) Reuters.

By Yasin Ebrahim

Investing.com – The S&P 500 pared its losses Friday, as cyclical sectors continued to rack up gains as the reflation trade gathers pace in the wake of rising Treasury yields.

The S&P 500 rose 0.05%, the Dow Jones Industrial Average gained 0.03%, or 11 points, the Nasdaq slipped 0.19%.

Cyclical sectors are back in demand as investors renew bets on the reflation trade – stocks that move in tandem with economic growth, inflation and Treasury yields following a climb in Treasury yields. The 10-year yield rose to 1.45% for the first time since early July.

“The reflation trade is reflating, as 10-year yields break through some initial resistance,” said Mark Luschini, chief Investment strategist at Janney Montgomery Scott in a note. “Small-caps, value stocks, and banks/financials … continue to be powered by a strong correlation to trends on the Treasuries.”

Rising yields – supported by expectations for tighter Federal Reserve monetary policy has steadied fears about the economy at a time when concerns about Chinese real estate developer Evergrande continue to linger. Evergrande was due to make $84 million in coupon payments on Thursday, but bondholders are still waiting on it.

“Focus on the 10-year treasury … that’s a key indicator of a global economy that is doing well,” Darren Schuringa, CEO of ASYMmetric ETFs told investing.com earlier this week. “Longer-term, we need strengthening global GDP growth to sustain the rally [in equities].

Energy and financials were the biggest gainers on the day, with latter benefiting from an ongoing move higher in bank stocks.

Lincoln National (NYSE:LNC), Raymond James Financial (NYSE:RJF), Truist Financial Corp (NYSE:TFC) were up more than 1%

In tech, Facebook (NASDAQ:FB) continued to recover losses from earlier this week, helping the broader tech sector pared some of its intraday losses.

Roku (NASDAQ:ROKU) slipped 4% after Wells Fargo downgraded the company to equal weight from overweight, and cut its price target on the stock to $350 from $488, citing expectation for slower revenue growth ahead.

Nike (NYSE:NKE) cut its revenue forecast amid ongoing supply chain issues that led to a fiscal first-quarter revenue miss, sending the sportswear giant’s shares down 6%.

Still, some on Wall Street believe the slump in Nike is a buying opportunity.

“We expect supply chain issues to prove transitory and recommend clients use any related nearer-term share price weakness as a buying opportunity,” Oppenheimer said in a note.

In other news, cryptocurrency-related stocks were hurt by a further crackdown on crypto in China.

China’s central bank deemed all digital currency activities illegal and vowed to crack down on the market.

Robinhood Markets (NASDAQ:HOOD), Coinbase (NASDAQ:COIN), Marathon Digital (NASDAQ:MARA) were in the red.

S&P 500 Cuts Losses as Yield Surge Renews Bets on Reflation Trade

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