Fox Business/Jonathan Garber
Nasdaq in crosshairs as dot-com bubble threatens repeat
History suggests the selloff that has plagued technology stocks amid the recent rise in bond yields could still spill over into the broader market.
The Nasdaq Composite has fallen 7.25% from its Feb. 12 record high through Tuesday as a sharp rise in the 10-year year yield caused investors to flee stocks in the growth-heavy index. At the same time, the Dow Jones Industrial Average has held within 0.4% of its record peak.
Investors have taken advantage of the selloff in technology, buying shares of highflyers such as Tesla Inc. and Apple Inc. at heavily discounted prices. But David Rosenberg, chief economist and strategist at Toronto-based Rosenberg Research warns the current environment is a lot like what happened at the peak of the dot-com bubble.
In early 2000, the view, like today, “was that equities were not interest rate sensitive any longer and that the business cycle had been repealed,” said David Rosenberg, chief economist and strategist at Toronto-based Rosenberg Research.
Between mid-March and mid-April of that year, the Nasdaq Composite declined 20% while the Dow remained near its all-time highs. By the end of 2000, the Nasdaq had been cut in half while the Dow declined more than 9%.
Before the recession began in March 2001, the Nasdaq was down 66% and the Dow had lost 15%.
“The lesson here is that near or at market peaks, it is common for the Nasdaq to first succumb to the overhyped inflation fears and the rise in bond yields, and after the mega caps slip, the Dow follows with a lag,” Rosenberg said. “And the blue-chips decline, albeit at a slower rate.”
Gold recoups losses as U.S. yields slip after CPI data
Gold erased earlier losses to hit a one-week high on Wednesday, as U.S. Treasury yields eased after subdued inflation data, with bullion gaining further support from a dip in the dollar.
“Gold is still taking cues from the Treasury market and today’s data lessens worries about near-term inflation,” said Edward Moya, senior market analyst at OANDA, saying that inflation pressures were currently driving yields, rather than gold, higher.
“If today’s 10-year note sale has decent demand, gold prices could eventually make a run towards $1,730… The $1,700 level will provide key support…but that should hold unless the bond market selloff resumes,” Moya said.
Treasury yield trend suggests no relief from higher rates, backs up inflation jitters
Even though the benchmark 10-year Treasury note yield touched a one-week low on Wednesday, economic forecaster Lakshman Achuthan believes the path forward is higher.
According to Achuthan’s proprietary data, the U.S. is already in the grip of inflation.
“It is not transitory. It’s cyclical,” the Economic Cycle Research Institute co-founder told CNBC’s “Trading Nation” on Wednesday. “The underlying trend regardless of the narratives is going to remain to the upside.”
Achuthan uses a chart of the 10-year yield to back up his bullish inflation call. It shows yields over the past five years and includes when he made inflation cycle upturn and downturn forecasts.
“Six months ago we had an upturn call in the inflation cycle which joined with the earlier business cycle recovery call,” said Achuthan, whose time horizon looks out several months.
On “Trading Nation” in October, Achuthan warned inflation was making a “pervasive and persistent” comeback. At that time, the 10-year yield was still firmly below 1%. But Achuthan had detected a material change in the future inflation gauge.
His latest forecast suggests there’s no relief in sight. Any breathers, according to Achuthan, should not be taken as a signal that rates have peaked.
Gold Advances for Third Day as Stimulus, Inflation in Focus
Gold climbed for a third day as investors weighed the prospects of further U.S. stimulus and the latest reading on inflation.
Joe Biden’s $1.9 trillion Covid-19 relief bill cleared its final congressional hurdle Wednesday, with the House passing the bill on a 220-to-211 vote, sending it to the president to be signed, which he plans to do on Friday. Still, the partisan divide over the bill foreshadows the difficulty Biden will have in enacting the multi-trillion dollar, longer-term economic program he wants later this year.
Meanwhile, a key measure of U.S. consumer prices rose less than expected in February as costs of used vehicles, clothing and transportation services declined from a month earlier, suggesting broader inflationary pressures remain tame. This likely eased some concerns over economic overheating, given the sheer size of the overall stimulus package.
Bullion’s movements have recently been dictated by the dollar and bond yields, with the latter’s rise to the highest level in a year weighing on demand for the precious metal which doesn’t offer interest. Bets on rising inflation provided some support for gold as a hedge, but the overarching optimism over an economic recovery following the roll-out of vaccines has seen diminishing investor interest for the traditional haven.
“The U.S. core inflation had missed consensus against earlier fears of a bigger than expected jump, helping bond yields edge lower and thereby the greenback as well,” said Jingyi Pan, market strategist at IG Asia Pte. “In turn, we have seen gold prices trade higher, though it is not out of the woods yet with the greenback still having the potential to continue the climb amid the rising bond yield trajectory expected by the market. Some back and forth here for prices should not be ruled out.”
Bond King Jeffrey Gundlach: Gold price is done falling
Gold has been disappointing investors this year, but the precious metal’s luck is about to change, at least according to DoubleLine CEO Jeffrey Gundlach.
“Gold went down to $1,681 on Monday on the close. That might be the low in gold for a while,” Gundlach said in a webinar.
Gold has really underperformed this year, falling below $1,700 an ounce on Monday. “Gold has really underperformed other froth assets like bitcoin by incredible amounts, almost inconceivable amounts since that peak in gold above $2,000,” Gundlach stated.
But at this particular juncture, “gold is very likely to bounce because the selloff has been pretty powerful.”
Gundlach pointed out that he is also bullish on commodities and negative on the dollar in the long term.
Inflation was another key topic covered by the webinar, with Gundlach saying that the headline inflation will breach 3% this summer and remain above that level for a few months.
“The Fed chooses to be unconcerned about a period of time with inflation running above 3%,” Gundlach said. “In my opinion, not only are they unconcerned, they welcome inflation being higher than interest rates. They like negative interest rates because they know that negative interest rates help to forestall the incredible deficit and unfunded liability problems the United States has.”
There is even a chance that inflation could rise to 4%, which would “really spook” the bond market. “One could actually plausibly predict that headline CPI could go over 4% at some point in about four months from now,” he added.