Monetary policy U. S.

Yield and tech sector

Dynamics of stock prices since the beginning of the year has been highly correlated to data and narratives of yield and inflation. Tech sector is more sensitive to the rise of yield.

I think the central banks will be happy if inflation is moving to their targets. The rises of yields on longer term bonds are indications of and confidence on economic growths. What concerns the market is that rising speed of yield gets too fast, as investors may take a cue from the better than expected economic recovery shown by recent employment data.

The Fed is using its communication tool to send a message to the market. In a hearing before the House Financial Services Committee, chair Powell said, “The re­cov­ery has pro­gressed more quickly than gen­er­ally expected and looks to be strengthen­ing. But the re­cov­ery is far from com­plete, so, at the Fed, we will con­tinue to pro­vide the econ­omy the sup­port that it needs for as long as it takes.”

The ECB in its latest monetary policy, has done its part to commit no rate change and keep its asset purchase program. See my note on March 14.

I think the yields will be stabilized in short term and tech stock is expected to recover to new highs. However keep a close eye on inflation and inflation expectation, as any indication of their rises will trigger another sell off in the tech sector, likely more intensively than the recent 10% plummet.

Leave a Reply

Your email address will not be published. Required fields are marked *