Stock markets are expected to start Monday with small losses, continuing the weakness seen in last week’s shortened holiday trade as another major paytable emerges.
That’s when bond yields rise.
Our call of the day, by a team of Evercore strategists led by Julian Emanuel, says stocks and bonds are “destined to move together” for the foreseeable future. Stocks are down 7.8% year-to-date and bonds are down 8.5%, a phenomenon that has only happened once in 40 years – in 1994, they noted.
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“More significant than performance alone is the collapse of the negative correlation between stocks and bonds, risk on/risk off, which has prevailed for two decades,” said Emanuel and the team.
Stocks and bonds “langered risk-off/risk-off during the inflationary mid-1960s and 1970s, and rose risk-on/risk-in as inflation eased in the ’80s and much of the ’90s. The commonality between these regimes: inflation trendiness,” they said.
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“While there are signs that inflation is peaking and opening up the possibility of ‘risk on/risk on’ for stocks and bonds, the ‘old normal’ has become the ‘new’
normal’ – stocks and bonds are designed to move together. Risk On/Risk On could start with 10-year yields stabilizing near current highs and accelerate on a drop below 2.55%; the end of recent parabolic progress
would allow investors to focus on both earnings growth and the still-low absolute level of interest rates, underpinning a rally towards the SPX 4,800,” said Emanuel and the team.
This could give investors a chance to refocus on earnings growth and low interest rates, which would underpin a rise in the S&P 500 to 4,800. But “until yields show further signs of stabilization/moderation, we reiterate a balanced approach to equity exposure in earnings season,” he said.
As for companies they like, Evercore offers an updated list of Russell 1000 RUI, names on their list of companies that are expected to outperform. What they do have in common is a market cap of over $10 billion, which sits in the bottom 25% of index performers year-to-date despite being in the top 25% for 2022 earnings revisions and positive expected earnings.
Uncredited The Buzz
Bank of America BAC, +0.77%, shares are up after reporting an earnings decline that still beat forecasts, while BNY-Mellon BK, -2.66%, came in below its earnings forecast. Shares of Charles Schwab SCHW, -7.26%, meanwhile, are down about 5% on weak net earnings.
Other big highlights this week include Netflix NFLX gains of -0.22% due Tuesday. Due on Wednesday are Tesla TSLA results, -0.38%, where investors will be looking for information on CEO Elon Musk’s $43 billion takeover bid for Twitter TWTR, +1.24%, whose shares are trading in the Premarket, after which social media companies rose, announced a so-called “poison pill” plan to thwart any takeover.
China’s economy grew 4.8% annually in the first quarter, beating expectations. That still leaves the country behind on plan to hit an official target of 5.5% growth this year, with new COVID outbreaks not helping.
Shares in Didi Global DIDI, -20.78%, fell 18% in premarket trading after the Chinese ride-hailing company reported a sharp drop in sales over the weekend and said it would hold a shareholders’ meeting next month to vote on a proposed delisting from the New York Stock Exchange .
Explosions rocked the western Ukrainian city of Lviv early Monday, leaving several dead as the country braced for a full-scale attack by Russian forces in the east.
The National Association of Home Builders’ April index is ahead, with comments also expected from St. Louis Fed President James Bullard.
The markets
Stocks DJIA, +0.39% SPX, +0.20% COMP, +0.05% opened mixed, particularly on the technology side. Treasury yields TMUBMUSD10Y, 2.824% up, CL00 Oil prices, +1.22% are slightly lower, while NG00 Natural Gas prices, +4.01% are up. Gold GC00, +1.10% also up. Asian markets had a mixed day, with some weakness in China 000300, -0.53% following this growth data. The Nikkei NIK, -1.08%, fell 1%. The European markets took an extended Easter break.
Crypto’s BTCUSD, -1.74% is also lower across the board.
The tickers
These were the most active stock ticker symbols on MarketWatch as of 6:00 AM ET:
| ticker | security name |
TSLA, -0.38% | Tesla |
GME, -0.90% | GameStop |
AMC, -1.44% | AMC entertainment |
MULN, -3.21% | Mullen Automotive |
TWTR, +1.24% | |
ATER, +1.27% | Aterian |
NO, -3.18% | NEVER |
NILE, +24.33% | BitNile |
AAPL, -0.07% | Apple |
NVDA, +0.87% | NVIDIA |
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