S&P 500 Snaps 2-Week Losing Streak as Cyclicals Ride Yields Higher

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By Yasin Ebrahim – The S&P 500 snapped a two-week losing streak Friday, as the broader market made up early-week losses, underpinned by cyclical sectors amid renewed bets on the reflation trade.

The rose 0.15%, the gained 0.10%, or 33 points, the Nasdaq slipped 0.03%.

Cyclical sectors are back in demand as investors renew bets on the reflation trade – stocks that move in tandem with economic growth, inflation and Treasury yields — following a climb in Treasury yields. The 10-year yield rose to 1.45% for the first time since early July. 

“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 — have 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 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 the 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 1%

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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 4% after Wells Fargo downgraded the company to equal weight from overweight, and cut its price target on the stock to $350 from $488, citing expectation for slower revenue growth ahead.

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 6%.

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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