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