S&P 500 Cuts Losses as Yield Surge Renews Bets on Reflation Trade



© Reuters.

By Yasin Ebrahim

Investing.com – The S&P 500 pared its losses Friday, as cyclical sectors continued to rack up gains as the reflation trade gathers pace in the wake of rising Treasury yields.

The fell 0.05%, the slipped 0.04%, or 14 points, the Nasdaq fell 0.27%.

“The reflation trade is reflating, as 10-year yields break through some initial resistance,” said Mark Luschini, chief Investment strategist at Janney Montgomery Scott  in a note. “Small-caps, value stocks, and banks/financials … continue to be powered by a strong correlation to trends on the Treasuries.”

Rising yields – supported by expectations for tighter Federal Reserve monetary policy has steadied fears about the economy at a time when concerns about Chinese real estate developer Evergrande continue to linger.  Evergrande was due to make $84 million in coupon payments on Thursday, but bondholders are still waiting on it.

“Focus on the 10-year treasury … that’s a key indicator of a global economy that is doing well,” Darren Schuringa, CEO of ASYMmetric ETFs told investing.com earlier this week. “Longer-term, we need strengthening global GDP growth to sustain the rally [in equities].

Energy and financials were the biggest gainers on the day, with latter benefiting from an ongoing move higher in bank stocks.

Lincoln National (NYSE:), Raymond James Financial (NYSE:), Truist Financial Corp (NYSE:) were up more than 2%.

In tech, Facebook (NASDAQ:) continued to recover losses from earlier this week,  helping the broader tech sector pared some of its intraday losses.

Roku (NASDAQ:) slipped 2% after Wells Fargo downgraded the company to equal weight from overweight, and cut its price target on the stock to $388 from $450, citing expectation for slower revenue growth ahead.

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Nike (NYSE:) cut its revenue forecast amid ongoing supply chain issues that led to a fiscal first-quarter revenue miss, sending the sportswear giant’s shares down 3%.

Still, some on Wall Street believe the slump in Nike is a buying opportunity.

“We expect supply chain issues to prove transitory and recommend clients use any related nearer-term share price weakness as a buying opportunity,” Oppenheimer said in a note.

In other news, cryptocurrency-related stocks were hurt by a further crackdown on crypto in China.

China’s central bank deemed all digital currency activities illegal and vowed to crack down on the market.

Robinhood Markets (NASDAQ:), Coinbase (NASDAQ:), Marathon Digital (NASDAQ:) were in the red.

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