From the wsj’s “Stock Futures Drop, Pointing to Retreat in Technology Shares” posted early Monday:
U.S. stock futures fell Monday, pointing to losses for the major indexes as rising bond yields prompted concern that technology shares are looking too expensive.
Investors are betting that the rollout of vaccines and President Biden’s proposed $1.9 trillion stimulus package will accelerate the economic rebound later this year.
Those expectations, combined with worries about rising inflation and the prospect of interest rates climbing sooner than anticipated, have contributed to a selloff in U.S. government bonds in recent weeks. Declining bond prices result in rising yields, which have stoked concern that highflying stocks are starting to look less attractive than assets considered to be risk free.
“As the yield goes up, there is more demand for [government bonds] in relation to other assets,” said Hani Redha, a portfolio manager at PineBridge Investments. “How much are you willing to pay for stocks? If you’re only getting a very low yield from bonds, you should be willing to pay a higher amount for stocks. But that starts to change when bond yields go up.”
Money managers have also been rotating out of the richly valued technology stocks that led markets higher last year. As economic prospects brighten, they are moving funds into economically sensitive sectors, leading to a rally in financial and energy stocks.
“They are about to put lighter fluid onto the barbecue with this $1.9 trillion in stimulus,” Mr. Spencer said. “You’ve got everything in your favor at the moment: good news on Covid-19 and stimulus and good earnings. That is why rates are higher,” he added.
My take: Let me get this straight. Fearing inflation, Mr. Market is selling bonds, driving interest rates higher and making AAPL et al. look overpriced. Meanwhile, anticipating stimulus checks, Mr. Market is buying … banks and oil companies? He doesn’t think some of those stimulus checks are going to be spent at the Apple Store?