Last week was an exciting one for investors in technology and homebuilder stocks, and other stocks that are sensitive to economic conditions, as bond yields saw a significant reversal from recent lows. The 10-year U.S. Treasury yield rose around 17 basis points in a week, closing above 1.60%. While small, it marked the first weekly increase in the yield since the first week of May.
The increase in bond yields comes amidst signs of economic improvement. The jobless claims data are staying mostly steady in the low levels, and the ISM manufacturing index posted fruitful readings of 60.7 in June and 62.1 in July, a strong indication of recovery.
The market reacted positively to this news, with a broad rally across stocks, with technology and homebuilder stocks leading the way. Tech stocks rose 3.8%, while homebuilder stocks rose 8.3%. This rally shows that investors are “following the smart money” and that they believe that the economy is bouncing back.
The reversal in bond yields is a sign that investors are unwinding their safe-haven trades. This move has been further supported by a rally in high-yield bonds and cyclical stocks.
One of the beneficiaries of the shift in bond yields has been technology stocks. Technology companies have benefited from increased demand for their products as people shift to online models of learning and working and rely heavily on technology equipment to enable remote working, due to the pandemic. Tech companies are also investing heavily in capital projects, such as 5G towers, which will fuel future growth.
Homebuilder stocks have also been a major beneficiary of the weekly reversal in bond yields. Low mortgage rates have sparked a strong demand for residential real estate in the U.S., and the decrease in unemployment provided further strength.
Overall, the reversal in bond yields is a positive sign for investors and reflects the view that the economic fundamentals are sound. Investors seem to be “following the smart money” and are increasing their exposure to technology and homebuilder stocks in anticipation of improved economic conditions.
