[Good Morning Market] Rising Treasury Yields and Volatile Bitcoin... Mixed Trends in US Stock Market

Financial Stocks Stand Alone in Strength... Tech, Pharmaceutical, and Bio Stocks Falter
Bitcoin Surpasses $50,000 for the First Time Ever... Followed by Selling Pressure
Increase in Bold Investors Confident in Economic Recovery

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] The U.S. stock market, which started higher on expectations of additional stimulus measures, closed mixed due to rising Treasury yields and Bitcoin price fluctuations. This is expected to also impact foreign investor flows in the domestic stock market.

On the 16th (local time) at the New York Stock Exchange, the Dow Jones Industrial Average closed up 0.20% at 31,522.75. Meanwhile, the S&P 500 fell 0.6% to 3,871.74, and the Nasdaq Composite dropped 0.34% to 14,047.50.

◆ Sangyoung Seo, Kiwoom Securities Researcher = The U.S. 10-year Treasury yield rose more than 10 basis points (bp, 1bp=0.01%) to surpass 1.3%. It had been below 1% until the end of last year but has increased by over 30bp this year. The rise is estimated to be driven by expectations of economic normalization following COVID-19 vaccinations, the passage of a $1.9 trillion (approximately 2,094 trillion KRW) stimulus package, and inflationary pressures from rising commodity prices. As a result, financial stocks showed strength. However, some growth stocks including technology, pharmaceutical, and biotech sectors, as well as some small- and mid-cap stocks concerned about rising interest expenses, saw sell-offs, causing the Nasdaq and Russell 2000 indices to turn negative and volatility to increase.

Meanwhile, the leading cryptocurrency Bitcoin surpassed $50,000 for the first time ever. This was attributed to cloud software company MicroStrategy's announcement of purchasing Bitcoin through convertible bond issuance. However, after extreme price volatility since late last week, intraday selling pressure led to a downturn. This is believed to be due to regulatory concerns highlighted by comments from European Central Bank (ECB) President Christine Lagarde and U.S. Treasury Secretary Janet Yellen. Ultimately, the market showed increased volatility due to rising Treasury yields and Bitcoin’s influence, limiting active participation from market players.

The impact of rising U.S. Treasury yields is also expected to affect the domestic stock market. Particularly, profit-taking in pharmaceutical, biotech, and some technology stocks in the U.S. market poses a burden. The process of digesting these sell-offs following prior gains is inevitable. From a supply-demand perspective, the rise in U.S. Treasury yields could serve as an alternative investment for foreign investors, increasing the likelihood of foreign selling in the domestic market. However, since the U.S. Federal Reserve (FED) continues to favor a dovish monetary policy, the spread of concerns is expected to be limited. Considering this, the domestic market is expected to start down by about 0.5% to 1%, with the index direction determined by foreign investor flows. Differentiation between inflation-beneficiary sectors and technology stocks is also expected to proceed.

◆ Ilhyuk Kim, KB Securities Researcher = There is a trend of bold investment based on confidence in strong economic growth and rising inflation. According to this month’s Bank of America (BoA) Merrill Lynch global fund manager survey, the number of respondents expecting a strong economy this year exceeded those who did not by 91 percentage points (P), the highest ever. More people are expecting a V-shaped rebound rather than a U-shaped one, indicating growing optimism about a strong economy.

Based on this, active investment is underway. The cash holding ratio in portfolios fell further to 3.8% from 3.9% last month, the lowest since March 2013. Meanwhile, the allocation to stocks and commodities reached the highest levels since February 2011. Only 13% of respondents believed there was a bubble in stocks. Twenty-seven percent said the market was in the early stages of a bull market, and 53% said it was in the late stages. Bubble concerns were minimal, and the number of respondents taking on above-average risk in their investments rose to an all-time high.

Compared to the previous month, there was a preference for growth stocks over value stocks by region and sector. Exposure to Eurozone and emerging market equities, as well as cyclical sectors such as banks, consumer discretionary, and energy, was reduced, while allocations to IT, healthcare, and defensive sectors increased. However, expectations for emerging markets slightly declined. Although emerging market equities were the most favored asset expected to perform well this year at 51%, this was down from the previous month. Emerging market equities had risen since the fourth quarter of last year on expectations of a weaker dollar, but the dollar’s weakening trend stalled last month, lowering expectations for emerging markets.

With rising U.S. Treasury yields, defensive sectors such as healthcare, real estate, and utilities fell more than 1% compared to the previous day. In contrast, energy and financial sectors rose 2.5% and 1.7%, respectively. The energy sector’s rise reflected concerns over production and transportation disruptions due to cold weather, while the financial sector responded to the rise in interest rates.

This content was produced with the assistance of AI translation services.