Buyers Snap Up Mega-cap Tech Stocks Despite Rising Bond Yields

Barry Adams
21 Aug, 2023
New York City

Tech stocks jumped in Monday's trading despite the yield on 10-year Treasury bonds traded at 16-year high.  

Market indexes traded higher after falling for three weeks in a row, largely because of rate hike worries and uneven economic rebound in China. 

Those worries were in full display after the U.S. Treasury yields advanced and the yield on 10-year Treasury bonds jumped above 5% for the first time since October and traded at a high not seen since 2007. 

On Sunday, the People's Bank of China, Chinese stock market regulator and the agency of the finance ministry together announced the government's intention to offer more financial and regulatory reforms without specifics. 

U.S. stocks have been under pressure for the last three weeks after the market rally driven by a narrow list of tech stocks hit valuation worries and longer-for-high rate path worries resurfaced. 

Investors are recalibrating their views on the economy, labor market and the Fed's policy stance. 

Despite the cooling of inflation, core inflation which excludes food and energy, is significantly higher than the Fed's preferred 2% level. 

Investors are divided if the Fed's current stance of lifting rates in 25 basis points increment will bring down inflation to 2%, as most economists forecast a mild and short recession because of strong labor market conditions.

In Monday's trading, investors snapped up large cap tech stocks including  Tesla, Microsoft, Meta, Nvidia, Intel and other semiconductor makers despite the rising Treasury bonds yields. 

Home builders and real estate developers, energy explorers and refiners and consumer staples were among the leading decliners.   

 

U.S. Indexes & Yields 

The S&P 500 index traded up 0.7% to 4,399.77 and the Nasdaq Composite gained 1.6% to 13,497.59.  

The yield on 2-year Treasury notes increased to 5.0%, 10-year Treasury notes inched higher to 4.34% and 30-year Treasury bonds edged up to 4.45%. 

Crude oil increased $0.22 to $81.02 a barrel and natural gas prices increased 5 cents to $2.60 a thermal unit. 

 

U.S. Stock Movers 

Palo Alto Networks Inc jumped 14.5% to $242.84 after the cyber security and network infrastructure company reported better-than-expected quarterly results. 

VMware Inc jumped 4.2% to $161.28 after Broadcom said it got the UK's Competition and Market Authority gave its final approval of the purchase of the cloud computing company. 

Broadcom Inc jumped 2.4% to $845.25. 

Earthstone Energy Inc soared 13.8% to $18.42 after the company agreed to be acquired by  Permian Resources in an all-stock deal that valued the company at $4.5 billion, including the company's debt. 

Each share of Earthstone common stock will be exchanged for 1.446 shares of Permian Resources common stock.

 

European Markets Rebounded, German Wholesale Index Cooled

European markets attempted a rebound on Monday after investors set aside worries of rising rates and looming economic slowdown. 

Market indexes advanced in London, Paris and Frankfurt and bond yields hovered near recent highs on the worries that a possible rate hike in the U.S. in September could kick off another round of global rate hikes. 

But for today, markets advanced after the producer price index in Germany declined more-than-expected 6.0% from a year ago in July, the Federal Statistics Office or Destatis reported Monday. 

The larger-than-expected decline in inflation supported the market advance in Germany and in the Euro Area. 

Investors also reviewed the latest rate increase in China and regulators promised more reforms on Sunday but failed to provide specifics. 

Investors in Europe are looking for a slowdown in consumer spending and exports from manufacturing companies in Germany, France and Italy. 

So far, exports from the region to the U.S. and China have held up, supporting the earnings growth outlook in 2023. 

But elevated inflation and soaring prices of food, energy and homes have dented consumer appetite for large-ticket items.

On the economic calendar later this week,  Italy's current account balance and jobless rate in France are on deck. 

 

Europe Indexes & Yields

The DAX index increased 0.2% to 15,603.28, the CAC-40 index rose 0.5% to 7,198.06 and the FTSE 100 index edged lower 0.01% to 7,257.83.

The yield on 10-year German bonds increased to 2.67%, French bonds traded higher to 3.21%, the UK gilts edged up to 4.69% and Italian bonds increased to 4.36%.

The U.S. dollar traded near a 2-month high after the minutes of the meeting held on July 25-26 raised the prospect of another rate hike at the next policy meeting. 

The euro edged lower to $1.091, the British pound to $1.271 and the U.S. dollar fetched 87.90 Swiss cents.

Brent crude decreased $0.53 to $84.24 a barrel and the Dutch TTF natural gas increased €4.37 to €40.78 per MWh.

 

Europe Stock Movers

In Frankfurt trading, SAP, BMW, MTU Aero Engines, and Infineon Technologies advanced more than 1%. 

In London trading, mining stocks advanced after Chinese regulators and the People's Bank of China in a joint declaration announced to offer more financial and regulatory support. 

Antofagasta, Anglo American and Glencore gained around 1% on the hopes of more stimulus for the moribund property market. 

In Paris trading, luxury stocks were in focus on the hopes of China stimulus.

LVMH, Hermes, Christian Dior, Pernod Ricard, Kering SA and Richemont jumped between 1% and 2%.