S&P bounces back
On Friday the S&P 500 broke below 4,200 and the support line of the upward-trending price channel which has been developing since the low hit in October last year. Then in early trade yesterday the index broke below 4,200 to hit its lowest level since the beginning of June, in a continuation of the decline which began last week.
This looked like a significant break of support. But it wasn’t sustained. By mid-morning UK time the S&P had bounced back above 4,200 and it has built on those gains today.
The trigger for both the sell-off, and the rally, were bond prices. The yield on the key US 10-year Treasury note first broke above 5.00% to hit a fresh 16-year high. This saw traders of US stock index futures dump their longs and open new short positions. But this time round, that 5.00% yield appeared too attractive for bond traders to ignore, and many rushed in to hoover up Treasuries. But it wasn’t just the 5% yield which was the trigger, as we saw this level hit last week. This time, we also heard that hedge fund boss, Bill Ackman (previously a bond bear) had closed his short position on bonds. At the same time, bond guru Bill Gross, predicted a recession before year-end which, if so, would see bond yields fall substantially. Yields have bounced since yesterday’s decline, but they remain below the 5.00% line.
Today we heard positive earnings from General Motors and Coca-Cola. After the close tonight we get updates from Alphabet and Microsoft. These are two constituents of the ‘Magnificent Seven’ – the group of stocks that did so much to drive gains in the first half of this year. The importance of these companies to the health of the major US stock indices can’t be overstated. Just five companies, Alphabet, Microsoft, NVIDIA, Apple and Amazon account for around 25% of the market capitalisation of the S&P 500.
This looked like a significant break of support. But it wasn’t sustained. By mid-morning UK time the S&P had bounced back above 4,200 and it has built on those gains today.
The trigger for both the sell-off, and the rally, were bond prices. The yield on the key US 10-year Treasury note first broke above 5.00% to hit a fresh 16-year high. This saw traders of US stock index futures dump their longs and open new short positions. But this time round, that 5.00% yield appeared too attractive for bond traders to ignore, and many rushed in to hoover up Treasuries. But it wasn’t just the 5% yield which was the trigger, as we saw this level hit last week. This time, we also heard that hedge fund boss, Bill Ackman (previously a bond bear) had closed his short position on bonds. At the same time, bond guru Bill Gross, predicted a recession before year-end which, if so, would see bond yields fall substantially. Yields have bounced since yesterday’s decline, but they remain below the 5.00% line.
Today we heard positive earnings from General Motors and Coca-Cola. After the close tonight we get updates from Alphabet and Microsoft. These are two constituents of the ‘Magnificent Seven’ – the group of stocks that did so much to drive gains in the first half of this year. The importance of these companies to the health of the major US stock indices can’t be overstated. Just five companies, Alphabet, Microsoft, NVIDIA, Apple and Amazon account for around 25% of the market capitalisation of the S&P 500.
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