Tuesday, May 25, 2021
To Taper or Not to Taper: That Is the Question
On the LPL Market Signals podcast, Chief Market Strategist Ryan Detrick and Equity Strategist Jeff Buchbinder dig into why tapering is a normal part of the recovery process and why they think the inflation threat remains transitory.
U.S. equities attempt for two consecutive higher trading sessions as growth names rebound
- The Nasdaq Composite opened 0.6% higher while U.S. Small Caps (Russell 2000) are up 0.5% this morning.
- European markets are mostly higher through midday trading.
- Asian markets finished in the green as China’s (Shanghai Composite) market gained over 2%.
Global sentiment improves
Strong data on global sentiment this morning is signaling an improving global outlook.
- The Bank of Korea’s May consumer sentiment survey hit a three-year high and income from operations May survey on Germany’s business climate climbed to a two-year high.
- Meanwhile, U.S. economic surprises are still tilting positive but now lag behind most other major developed economies. U.S. growth expectations still stands out among developed markets.
- Global opportunities may become more balanced as potential for upside surprises becomes more focused on economies that are earlier in their economic cycle.
- Look for the Conference Board’s May survey of S. consumer confidence out later today.
The relationship between Treasury yields and mortgage rates
- Currently at 3.10%, mortgage rates are still around all-time lows but they may be headed higher.
- The 30-year mortgage rate has historically tracked the 10-year Treasury yield plus 1.75%. With our expectation for higher Treasury yields, that will put upward pressure on mortgage rates as well.
- While we think mortgage rates are likely headed higher from current levels, we don’t think mortgage rates get back to their historical average anytime soon.
- For more on our thoughts on the relationship between Treasury yields and mortgage rates see today’s LPL Research blog, available at 1p.m. ET.
Near-term outperformance by growth stock may present an opportunity for a better entry to tilt toward value
- The growth-oriented technology and communication sectors have had a strong week, topping the sector leader board.
- We still see some long-term opportunities for growth, but believe that value style stocks may continue to benefit from reopening and the broader performance trend remains intact.
- The recent strength of growth-oriented sectors may provide an opportunity to lean into value for portfolios that still have a growth tilt.
The S&P 500 Index continues its acceleration off the 50-day moving average, extending gains from last Wednesday’s low to more than 3.3%. However, gains were mostly led by the largest weights, with advancers outnumbering decliners by just 2:1 on the NYSE. The S&P 500 would need just 1% gain to eclipse record highs at 4238.
Stock Market Gains Likely To Slow
LPL Research explores how, as this bull market gets a little older, the pace of stock market gains will likely slow but does not expect pullbacks to last very long. Learn more in this week’s Weekly Market Commentary.
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