The S&P 500 index has risen nearly 13% since the start of 2023, but stocks gave back some earlier gains in August and September, shaking the faith of many bullish investors who are now keeping a wary eye on Treasury yields and who may be ready to sell equities if yields tick higher.
Investors are still parking a substantial share of their portfolios in cash and T-bills, which could help to guard against any further losses in stocks during the months to come, according to Bank of America’s Michael Hartnett.
However, for stocks to hold the line, one thing needs to happen, Hartnett said in his weekly “Flow Show” report: Treasury yields need to remain below 5%. Should yields break above that level, selling pressure could quickly compound. While yields on the short end of the Treasury curve are already trading above of 5%, investors have been more focused recently on 10-year and 30-year yields which have yet to make a lasting break above that level.
“Treasurys stay below 5%, SPX can stay above 4.2k in near-term given bearish sentiment,” Hartnett wrote.
Yields on the 10-year
BX:TMUBMUSD10Y
and 30-year Treasurys
BX:TMUBMUSD30Y
reached their highest levels in 16 years in early October, before retreating, a move which helped take some of the air out of stocks.
Hartnett also noted in his latest report that the “Magnificent Seven,” a group of megacap stocks including Apple Inc.
AAPL,
Microsoft Corp.
MSFT,
Amazon.com Inc.
AMZN,
Tesla Inc.
TSLA,
Alphabet Inc.
GOOGL,
GOOG,
Meta Platforms Inc.
META,
and Nvidia Corp.
NVDA,
now account for almost 30% of the S&P 500’s market capitalization — a record.
Technology stocks were the biggest decliners on Friday, leaving the Nasdaq Composite
COMP
on track for a weekly loss, according to FactSet data, but they were outperforming earlier in the week. The S&P 500
SPX
and Dow Jones Industrial Average
DJIA
were also trading in the red Friday afternoon, but both remained on track for weekly gains.
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