Uncertainty over pandemic rebound bets holds back Wall St

Wall Street’s main stock markets drifted and Treasury yields fell as investors held back from adding to bets based on strong corporate earnings and economic data.

The blue-chip S&P 500 index, which hit an all-time high last week, drifted 0.1 per cent lower despite AT&T becoming the latest large US business to report forecast-beating revenues for the first quarter. The technology-focused Nasdaq Composite rose by 0.2 per cent.

The yield on the US 10-year Treasury fell 0.02 percentage points to 1.563 per cent after unemployment data showed the number of new claimants in the US falling to a pandemic era low last week. Treasuries sold off heavily in the first three months of this year as bondholders anticipated a jolt of inflation from a rapid economic rebound.

Investors are increasingly turning neutral towards a US stock market rally that began in November — on the back of announcements from drugmakers that they had developed effective coronavirus vaccines — bolstering bets on economic reopenings across industrials, banking and energy. These were the worst performing subsectors of the S&P in the first hour of trading in New York.

“US markets can still perform well,” said Pascal Blanqué, chief investment officer at fund manager Amundi, while warning of the need to avoid “any excess euphoria that is building up.”

“There is not a huge upside left” in US markets, added Stéphane Monier, chief investment officer at private bank Lombard Odier. Investors were waiting for a market correction before adding to positions again. “It is unclear what could trigger another leg up,” he added.

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In Europe, equities were on track for their second day of gains. The Stoxx 600 equity index rose 0.5 per cent, having closed 0.7 per cent higher on Wednesday and heading back towards its all-time high achieved earlier this week. The UK’s FTSE 100 added 0.1 per cent.

First-quarter sales at Nestlé grew more quickly than analysts had expected, a day after fellow European blue-chips ASML and Heineken also reported forecast-beating results.

The Stoxx is trading at 18 times forecast earnings compared to 23 times for the S&P. Europe has made slower progress in coronavirus vaccinations than the US. Azad Zangana, senior European economist and strategist at Schroders, said this meant markets had more of a recovery trend to look forward to in Europe.

“US assets are incredibly expensive now compared to their own history and the rest of the world, so it is very easy to find good arguments to be underweight the US and overweight Europe,” he said.

The 10-year German Bund yield ticked 0.02 per cent higher to minus 0.245 per cent after a European Central Bank meeting that signalled no change to its commitment to buying up vast quantities of bonds issued by nations in the bloc.

The euro rose 0.1 per cent against the dollar to $1.205. Sterling fell by 0.4 per cent to $1.389.

Brent crude fell by 0.6 per cent to $64.91 a barrel after India reported a world record of 315,000 new infections for Wednesday, surpassing the US peak earlier this year.

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