{"id":6885,"date":"2023-09-05T10:35:56","date_gmt":"2023-09-05T10:35:56","guid":{"rendered":"https:\/\/prosfunds.com\/markets\/stocks-and-bonds-are-out-of-balance-heres-what-could-come-next\/"},"modified":"2023-09-05T10:35:57","modified_gmt":"2023-09-05T10:35:57","slug":"stocks-and-bonds-are-out-of-balance-heres-what-could-come-next","status":"publish","type":"post","link":"https:\/\/prosfunds.com\/?p=6885","title":{"rendered":"Stocks and bonds are out of balance. Here\u2019s what could come next."},"content":{"rendered":"
\n

Put away your white clothes and your barbecues, now that summer is (unofficially) over with Labor Day in the rear-view window. Most of Wall Street\u2019s attention is still on Friday\u2019s jobs report, which showed a Goldilocks-like combination of a slowing labor market but not one tail-spinning into a recession.<\/p>\n

Analysts at BMO point out the S&P 500 earnings yield \u2014 that\u2019s earnings-to-price, rather than price-to-earnings \u2014 is now barely above the yield on the 10-year Treasury
\n BX:TMUBMUSD10Y.<\/span>
\n \u201cDeclining earnings yields compared to rising Treasury rates and the risk implied by the full faith and credit of the U.S. (even after the downgrade), begs the question of how long this dynamic can persist before returning to more historically typical levels either via higher earnings yields or lower 10-year yields,\u201d they say.<\/p>\n

\n
<\/p>\n

<\/p>\n

<\/p>\n<\/figure><\/div>\n

The initial price action on Tuesday is pointing toward the former \u2014 if stocks fall, the earnings yield rises \u2014 but for the call of the day,<\/strong> we\u2019ll head to the team at UBS, who say they are bullish on bonds. (The BMO team is as well; they\u2019re targeting the mid-August low in the 10-year of 3.95%.)<\/p>\n

\u201cRecent volatility in U.S. rates has raised the question of whether we are on the verge of a bear market for bonds. We do not share this view and think nominal yields will fall over our six- to 12-month forecast horizon for a number of reason,\u201d say the UBS team led by Mark Haefele, global wealth management chief investment officer.<\/p>\n

First, they point to Jerome Powell and crew over at the Federal Reserve, and say monetary policy is restrictive. They note that inflation-adjusted interest rates are now positive, at levels not seen since the 2008 financial crisis, and mortgage and credit card rates are at multi-decade highs.<\/p>\n

Next they say inflation is falling and will continue to do so. Housing inflation \u2014 though reflected in official numbers with a lag \u2014 is cooling, and goods inflation was negative in July.<\/p>\n

The UBS team add expectations for where rates will end up hasn\u2019t changed very much. \u201cWe do not believe the U.S. Treasury market has lost its safe-haven appeal, and it will likely continue to attract capital. There has also not been a material repricing higher of terminal policy rate expectations, indicating the market believes the Fed is close to the end of hikes,\u201d they say.<\/p>\n

Finally, they say, the recent recalibration of the Bank of Japan\u2019s yield-curve control wasn\u2019t the start of a larger move higher in global term rates. \u201cThe move in the 10-year Japanese government bond yield since the announcement is less than 20bps and we believe the BoJ places much weight on financial stability, so any policy adjustments are likely to be done in a controlled fashion,\u201d they add.<\/p>\n

They see the best opportunities in the 5-to-10 duration segment in government bonds, investment-grade corporate bonds and sustainable bonds.<\/p>\n

The market<\/h2>\n
<\/p>\n

<\/p>\n

<\/p>\n<\/figure><\/div>\n

U.S. stock futures
\n ES00,
\n -0.12%<\/bg-quote><\/p>\n

NQ00,
\n -0.23%<\/bg-quote>
\n were a bit weaker as the yield on the 10-year Treasury
\n BX:TMUBMUSD10Y
\n rose. <\/p>\n

For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to\u00a0MarketDiem by Investor\u2019s Business Daily.<\/strong><\/p>\n

The buzz<\/h2>\n

Struggling China property giant Country Garden made two overdue bond payments before the end of a 30-day grace period.<\/p>\n

It\u2019s the dregs of earnings season, with C3.ai
\n AI,
\n +0.64%<\/bg-quote>,<\/span>
\n GameStop
\n GME,
\n -0.70%<\/bg-quote>,<\/span>
\n DocuSign
\n DOCU,
\n +2.72%<\/bg-quote>,<\/span>
\n Smith & Wesson
\n SWBI,
\n -0.26%<\/bg-quote>
\n and Kroger
\n KR,
\n -0.88%<\/bg-quote>
\n among the companies reporting results this week.<\/p>\n

Airbnb
\n ABNB,
\n +0.87%<\/bg-quote>
\n and Blackstone
\n BX,
\n -1.77%<\/bg-quote>
\n are set to join the S&P 500, as Lincoln National
\n LNC,
\n +2.14%<\/bg-quote>
\n and Newell Brands
\n NWL,
\n +1.23%<\/bg-quote>
\n get removed. <\/p>\n

Weight-loss drug maker Novo Nordisk
\n NVO,
\n +1.99%<\/bg-quote>,<\/span>
\n which overtook LVMH to become Europe\u2019s most valuable company, launched its Wegovy weight-loss drug in the U.K. <\/p>\n

Best of the web<\/h2>\n

Revision whiplash: How to track underlying payrolls growth better. <\/p>\n

Huawei teardown shows chip breakthrough in blow to U.S. sanctions. <\/p>\n

The Culinary Union, Nevada\u2019s biggest, may strike over AI bartenders in Las Vegas. <\/p>\n

Top tickers<\/h2>\n

Here were the most active stock-market tickers as of 6 a.m. Eastern.<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n
\n Ticker<\/p>\n<\/td>\n\n Security name<\/p>\n<\/td>\n<\/tr>\n
\n TSLA,
\n -5.06%<\/bg-quote>\n <\/td>\n		\n Tesla<\/p>\n<\/td>\n<\/tr>\n
\n AMC,
\n +4.38%<\/bg-quote>\n <\/td>\n		\n AMC Entertainment<\/p>\n<\/td>\n<\/tr>\n
\n NVDA,
\n -1.71%<\/bg-quote>\n <\/td>\n		\n Nvidia<\/p>\n<\/td>\n<\/tr>\n
\n NIO,
\n +7.11%<\/bg-quote>\n <\/td>\n		\n Nio<\/p>\n<\/td>\n<\/tr>\n
\n AAPL,
\n +0.85%<\/bg-quote>\n <\/td>\n		\n Apple<\/p>\n<\/td>\n<\/tr>\n
\n GME,
\n -0.70%<\/bg-quote>\n <\/td>\n		\n GameStop<\/p>\n<\/td>\n<\/tr>\n
\n MULN,
\n -12.24%<\/bg-quote>\n <\/td>\n		\n Mullen Automotive<\/p>\n<\/td>\n<\/tr>\n
\n TTOO,
\n +11.82%<\/bg-quote>\n <\/td>\n		\n T2 Biosystems<\/p>\n<\/td>\n<\/tr>\n
\n PLTR,
\n +1.34%<\/bg-quote>\n <\/td>\n		\n Palantir Technologies<\/p>\n<\/td>\n<\/tr>\n
\n AMZN,
\n +0.08%<\/bg-quote>\n <\/td>\n		\n Amazon.com<\/p>\n<\/td>\n<\/tr>\n<\/table>\n

The chart<\/h2>\n
<\/p>\n

<\/p>\n

<\/p>\n<\/figure><\/div>\n

Student-loan repayments have already started to spike, ahead of the official October ending of the federal moratorium. In fact, payments to the Department of Education have already surged to a level before the payment pause began, points out Goldman Sachs analyst Alec Phillips. He says what is likely going on is that a small group of borrowers are paying down principal on their loans. The broader economic impact, he says, will hit in the fourth quarter.<\/p>\n

Random reads<\/h2>\n

The exodus from the muddy Burning Man festival is underway. (Honestly it doesn\u2019t sound like the catastrophe that was either hoped\/feared.) <\/p>\n

A schooner\u2019s 142-year-old remains were just discovered in Lake Michigan. <\/p>\n

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern. <\/strong><\/p>\n

Listen to the Best New Ideas in Money podcast with MarketWatch financial columnist James Rogers and economist Stephanie Kelton. <\/strong><\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Put away your white clothes and your barbecues, now that summer is (unofficially) over with Labor Day in the rear-view window. Most of Wall Street\u2019s attention is still on Friday\u2019s jobs report, which showed a Goldilocks-like combination of a slowing labor market but not one tail-spinning into a recession. Analysts at BMO point out the […]<\/p>\n","protected":false},"author":1,"featured_media":6886,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","footnotes":""},"categories":[33],"tags":[],"class_list":{"0":"post-6885","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-markets"},"yoast_head":"\nStocks and bonds are out of balance. Here\u2019s what could come next. | Prosfunds<\/title>\n<meta name=\"description\" content=\"Put away your white clothes and your barbecues, now that summer is (unofficially) over with Labor Day in the rear-view window. 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