US technology shares slipped and European equities climbed on Tuesday, as investors backed out of pandemic winners and positioned instead for a global economic recovery.
Wall Street’s tech-focused Nasdaq Composite dropped 0.1 per cent to close lower for a second-straight day. The broader S&P 500 index also fell, off 0.3 per cent.
US government bonds also came under pressure. The yield on the 10-year US Treasury hit its highest level since last January earlier in the session, rising 0.04 percentage points to more than 1.76 per cent before settling at about 1.71 per cent. The yield on the equivalent German Bund added 0.03 percentage points to minus 0.29 per cent.
The continued rise in US Treasury yields, which influences borrowing costs worldwide, has hit the valuations of growth stocks, contributing to the underperformance of the Nasdaq this year. The tech index has risen roughly 1 per cent so far in 2021.
Europe’s Stoxx 600 index, which advanced 0.7 per cent on Tuesday, has risen almost 8 per cent this year, following a 10.5 per cent gain in the three months to last December. The European equity benchmark, which is dominated by old-economy businesses whose fortunes are pegged to a rebound in global growth, is now within touching distance of its pre-pandemic record of 433.9 reached on February 19 last year.
The banks subsector of the European index has surged more than 20 per cent in the first quarter while its industrial goods and services businesses have notched up a 9 per cent gain.
The first quarter of this year on global stock markets “was as classic a cyclical rotation as you’ll likely see in your lifetime”, said Nicholas Colas of research house DataTrek.
The moves came as investors looked past the worsening coronavirus situation in continental Europe and bought up the bloc’s globally focused businesses.
A net 30 per cent of global portfolio managers had an overweight position on European stocks in mid-March, according to a Bank of America survey, up from 20 per cent a month earlier.
Monica Defend, head of research at Amundi, said investors were also banking on European companies achieving stronger profit growth than their US peers during the next 12 months because the bloc’s recovery from the pandemic and vaccine rollouts had been slower than in North America.
“The two regions are really running at different speeds,” said Defend. “You have more recovery further out [in Europe] than you have in the US.”
Germany’s Xetra Dax gained 1.3 per cent on Tuesday, hitting a record high, while London’s FTSE 100 closed up 0.5 per cent, adding to an almost 5 per cent gain for the quarter.
Emmanuel Cau, head of European equity strategy at Barclays, warned that stock market trades based on recovery from the pandemic remained vulnerable to central banks reining in the huge monetary support they began applying to markets this time last year.
“There is a lot of confusion in the market,” he said. “If you are confident about the macro economy, then at some point you worry about the next step, which is the removal of monetary stimulus.
“Perhaps we are now in a window where you can have supportive liquidity and strong growth but we are getting close to the end of the Goldilocks phase.”