Market week: Stocks retreat as bond yields surge
Bonds sell off on rising inflation fears
Higher yields on U.S. Treasury bonds spooked the markets sufficiently last week for the major North American indexes to post significant weekly losses. Anticipating broader economic recovery as Covid-19 vaccinations take effect in coming months with attendant inflation as the U.S. Federal Reserve maintains an easy money policy, bond traders sold off U.S. Treasuries (bond prices and yields move inversely), boosting the rate on the benchmark U.S. Treasury bond to over 1.4% by the end of the week, its highest level in a year. The bond bears are, apparently, enjoying their day in the sun, as selling begets more selling, absent any talk of “tapering” of asset purchases by the Fed anytime soon.
The sudden surge in bond yields last week got equity investors re-pricing stocks in a big way, as fixed-income suddenly presented an actual alternative to equities, an alternative that’s been absent for over a year as Treasury rates hovered near zero. The action led to a 2.5% loss for the week on the S&P 500 Composite Index, which still gained 2.6% on the month and remains ahead 1.5% year to date.
The technology-weighted Nasdaq Composite Index was hit harder, as growth stocks lost ground; the index dropped 4.9% on the week, and gained just 0.9% for the month, with a 2.4% year-to-date advance.
Toronto’s benchmark S&P/TSX Composite Index retreated 1.8% on the week, but gained 4.2% on the month supported by an 18.0% monthly gain in crude oil and a weaker U.S. dollar. The index remains 3.6% ahead for the year to date.
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