Rising Rates and Falling Stocks 1/13/25
Halftime Report
Deep Dive
Why are stocks under pressure, particularly the Nasdaq, in the current market?
Stocks are under pressure due to the 10-year Treasury yield hitting 4.8%, its highest level since November 2023. Additionally, institutional investors like pension funds and hedge funds have been net sellers of equities, driven by changes in the Fed's rate cut path and tax-related selling by private clients to avoid significant tax bills.
What is driving the rebalancing between energy and tech stocks?
The rebalancing is driven by tax-related selling in tech, where investors are taking profits after significant gains, and shifting into energy, which was last year's worst-performing sector. Additionally, 86% of S&P 500 energy names are above their 20-day moving average, making them attractive for rebalancing.
What are the key factors influencing the market's reaction to rising interest rates?
The key factors include the rapid rise in the 10-year Treasury yield by over 100 basis points since September, inflation expectations increasing by 50 basis points, and the shift in market expectations from rate cuts to potential rate hikes. These changes have led to a reassessment of the market's bullish outlook.
Why are pension funds selling equities and buying bonds?
Pension funds are selling equities and buying bonds because they are now fully funded or overfunded due to higher bond yields. This reallocation is part of a mechanical adjustment to their portfolios, contributing to the early-year market volatility.
What is the potential impact of tariffs on the market?
Tariffs are seen as inflationary, which can lead to higher bond yields and lower stock prices. While tariffs may create jobs and increase onshore activity in the long term, they introduce short-term pain and uncertainty, prompting investors to sell stocks and seek safer alternatives like bonds.
What is the outlook for AI-related stocks given the current market conditions?
AI-related stocks are trading based on future fundamentals rather than current performance. While they have pulled back from recent highs, the long-term potential remains strong. Investors are advised to look for buying opportunities as the tax-related selling and rate volatility subside.
What are the key drivers behind the success of Bitcoin ETFs in 2024?
The success of Bitcoin ETFs in 2024 is driven by retail enthusiasm and the appeal of the ETF wrapper, which bridges the gap between cryptocurrencies and traditional finance. The category has grown to $113 billion in assets, with BlackRock's iShares Bitcoin Trust leading the way.
What are the reasons behind the recent outperformance of airline stocks?
Airline stocks like United and Delta have outperformed due to strong consumer and business travel demand, despite concerns about rising rates. Their recent results have shown resilience, leading to substantial accumulation and hitting 52-week highs.
What is the fundamental transformation happening at Shake Shack?
Shake Shack is transitioning from proving its concept to scaling its business, with a long-term target of 1,500 units, up from the original IPO target of 500. The company has reported strong Q4 revenues and margins, with adjusted EBITDA up nearly 50% year-over-year, signaling a significant transformation.
- 10-year Treasury yield hit 4.8%, highest since November 2023
- Institutional investors have been net sellers of equities
- Significant tax loss selling due to large gains in tech stocks in previous years
- Rebalancing from tech to sectors like energy is occurring
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