But on Thursday morning, the weather changed. Investors disposed of US government bonds, raising the 10-year Treasury yield to 1.738%, the highest level in more than a year. Nasdaq Composite futures fell sharply, indicating that technology stocks may be prepared for another fall.
The change shows the mental tug of war occurring in all markets. While many investors are gearing up for an economic boom later this year, anxiety is growing about adverse side effects – namely, inflation, which could force the Federal Reserve to raise interest rates or reduce bond purchases before than expected.
“Strong economic growth – the kind we’ve been expecting since last summer, closes the product gap and leads to inflationary pressure,” Bank of America stock strategists told customers on Wednesday. “No surprises there.”
The economic picture is brightening. Thanks to President Joe Biden’s $ 1.9 trillion stimulus package and the vaccine launch, Fed officials now project that the US gross domestic product, the broadest measure of economic activity, will rise 6.5% this year. year, more than the 4.2% projected in December.
Meanwhile, the unemployment rate is expected to drop to 4.5% at the end of the year. In 2023, the unemployment rate may return to 3.5%, where it was before the pandemic.
We’re not there yet, acknowledged Powell. Another 700,000 claims for unemployment benefits for the first time are expected in Thursday’s Department of Labor report. That would be the lowest number of complaints since the start of the pandemic, but still well above 200,000 – some complaints normally registered before the virus arrived.
The Fed chairman emphasized that the central bank plans to examine the latest data when making decisions, rather than relying on projections.
“We said we would continue to buy assets at this rate until we see substantial progress,” said Powell. “And this is real progress, not predicted progress.”
Still, some on Wall Street are wondering whether the Fed’s choice to move – potentially until 2023 – could mean that it will be forced to take more dramatic action in the future, and fear that inflation may persist for longer than the authorities think.
“At the moment, it’s okay if the Fed’s assumption that any inflation is transient is proven to be correct,” Deutsche Bank’s Jim Reid told clients on Thursday. “However, if the market doubts the transitory nature of inflation at some point, that’s when the fun and games begin.”
The Bank of America team is more optimistic. “Since the beginning of this booming market, there is always one reason or another to complain,” said its strategists. They think investors can scale the “wall of concern” as markets are flooded with cash and corporate earnings growth looks set to increase. Your advice? “Stay optimistic.”
SPAC fundraising grew madly 2,000% over the previous year
Now, the world’s largest asset manager is voicing concerns, reports my CNN business colleague Matt Egan.
“If you look at the SPAC market, you will see that there are some really attractive new companies and new technologies coming into the market that are effectively financing,” BlackRock executive Rick Rieder told CNN Business. “And then there are some that don’t make sense.”
Rieder, director of global fixed income investments at BlackRock, asked investors to be careful before entering this space.
“You have to be very selective about where you are going and not just jump on that train because it was crazy,” he said.
Remember, special-purpose takeover companies – or front companies that exist only to go public with private entities – have become fashionable on Wall Street. Even celebrities like Alex Rodriguez and Jay-Z have launched SPACs to capitalize on the trend.
US-listed SPACs have raised $ 83.1 billion so far this year, according to Dealogic. This represents an increase of 2,031% over the same point last year. On Tuesday, the 2021 SPAC market exceeded a total of $ 82.6 billion in 2020.
One concern is that the amount of SPAC money hunting for merger candidates may exceed the number of quality private companies that could be obtained.
Rieder pointed out that some SPACs are going public with high ratings of 40 or even 50 times their revenue. “There is no chance for you to grow up on this,” he said.
Volkswagen shares are skyrocketing while the automaker takes over Tesla
The end of Tesla’s reign would be a major milestone in the transformation of Volkswagen into a powerhouse for electric vehicles. Severely burned by its diesel emissions scandal in 2015, the company is investing € 35 billion ($ 42 billion) in electric vehicles, betting its future on new technologies and a dramatic shift away from fossil fuels.
“Tesla is not just about electric vehicles. Tesla is also very strong in software. They really operate the car as a device. They are making good progress on the autonomous thing,” said Volkswagen CEO Herbert Diess, Julia CNN’s Chatterley this week. “But yes … let’s challenge Tesla.”
UBS analysts told reporters last week that investors were unable to gauge how quickly Volkswagen is gaining ground at Tesla and how much money the German company can earn by betting everything on electric cars before other established players, including Toyota and General Motors . The bank increased its target price for Volkswagen shares by 50%, to € 300 ($ 358).
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Also today: US unemployment insurance claims start posting at 8:30 am Eastern Time.
Tomorrow: a big week of central bank announcements closes with the Bank of Japan.