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Why a sharp fall in bonds “surprise people” and cause stocks to fall

Stock market investors were surprised Monday by a sharp drop in Treasury yields amid rising concerns. Increased example of COVID-19 Globally, according to Phil Camporeale, portfolio manager at JPMorgan Chase & Co.

“We’ve come a long way” since the outbreak of the pandemic, Camporeale, manager of JP Morgan’s $ 5 billion global allocation fund, said in a telephone interview Monday. But “the move to lower rates always surprises people.”

Treasury yield for 10 years
TMUBMUSD10Y,
1.276%

According to Dow Jones market data, Monday fell almost 12 basis points to 1.181%. This is the largest daily yield decline since March 23, 2020.

According to Camporeale, JP Morgan’s global allocation fund, which employs a multi-asset investment strategy, will value in June based on a “clear signal” from Treasury bills over a decade that yields are declining. Reduced overweight on stocks. The decline in the past few months has signaled a period of “value-to-growth trade optimization,” he said, with rising interest rates and growth expectations for value stocks such as consumer discretion, finance and energy.

Fall in US stocks on Monday Dow Jones Industrial Average 30 species There is concern that the spread of delta mutants of coronavirus will increase on average
DJIA,
+ 0.68%

There is a sharp drop in the three major benchmarks. According to Dow Jones market data, the Best Equity Gauge fell by about 2.1%, the largest daily decline since October 28, 2020.

read: Why did the Dow fall on Monday? Economic growth is now a bigger concern than inflation.

The “Procyclic” Dow tends to be most hurt when “reopening is questioned,” but the technology-intensive Nasdaq Composite Index
COMP,
+ 1.04%

According to Camporeale, it tends to work in that environment. Nasdaq fell 1.1% on Monday, but S & P 500
SPX,
+ 1.01%

It fell 1.6%.

“We are still promising to resume trade, we have just adjusted our position a bit,” he said, adding that the Global Allocation Fund has also reduced its undervaluation of government bonds.

read: 10-year Treasury yields fall to a five-month low, reaching 1.179% as delta spreads spy on the market

According to Camporeale, concerns about US economic growth may be exaggerated, judging by Treasury yields.

According to Camporeale, the US economy was in better shape than in mid-February, the Treasury had been trading at similar levels for 10 years, and vaccination deployment was still in its infancy. The majority of Americans over the age of 65 are now Completely vaccinatedHe said it helps keep the severe cases and hospitalization rates of Covid-19 low, adding that the initial unemployment claims are now much lower. From February As the economy continues to recover.

read: U.S. unemployment claims have fallen to a pandemic low of 360,000, but businesses are still struggling to find workers

Camporeale expects US growth to peak in the second quarter, but “that doesn’t mean a transition from peak growth to recession,” he said. “We still believe in out-of-trend GDP growth until the end of this year.”

Scottren, senior global market strategist at the Wells Fargo Investment Institute, said in an interview Monday that he believes the 10 Treasury yields are too low, given the company’s economic outlook.

Wells Fargo predicts that the US economy will grow “very strong” by about 7% this year and will grow by about 5% in 2022. He said he expects yields on 10-year government bonds to rise to about 2% by the end of this year.

“The blockade that dramatically pushes the economy down seems unlikely for now,” Len said.

Why a sharp fall in bonds “surprise people” and cause stocks to fall

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