Key Talking Points:
- Tech stocks suffer further declines as bond yields pick up momentum again
- FTSE 100 continues to revert to its mean, bias tilts upward
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A sell-off in US bonds intensified again on Wednesday causing yields to pick up and tech stocks to take a dive for a second week.
Equities saw relative calmness in the first half of the week as the volatility in the bond market reduced significantly at the end of last, but global indices are struggling again this morning as investors’ concerns grown again.
Bond yields had been rising steadily since the beginning of the year, with high-growth technology companies being hardest hit as their valuations were underpinned by low rates, making them highly sensitive to interest rate expectations. The tech-heavy Nasdaq shed 3.8% in Wednesday’s session, adding up to losses of 9.4% in the last two weeks.
Part of this move higher has to do with investors increasing bets that the Federal Reserve will be pushed into tightening its monetary policy as a response to rapidly increasing inflation, causing an increase in the cost of doing business and making stocks less attractive.
In Europe, equities are holding up slightly better as the market is made up predominantly of cyclical stocks that will eventually benefit from rising inflation from an increase in economic activity. The FTSE 100 continues to revert to its mean within its Bollinger trading range, holding steady around the 6,620 area for the last few trading sessions.
FTSE 100 Levels
Current support remains around the 61.8% Fibonacci retracement (6,489) where the lower bound of the Bollinger range is now converging, showing that momentum is shifting slightly higher. The FTSE is likely to continue facing a lot of noise with a tendency to follow US equities, but I think it can continue to see a trend higher as long as it remains above the 6,480 area.
A break higher past the upper limit of the Bollinger bands seems unlikely given the current set up, but a slow-paced uptrend could continue to unfold in the next few days, at which point the 6,800 mark becomes the next target, which has been an area of strong resistance since the FTSE 100 below it back at the beginning of January.
FTSE 100 Daily chart
— Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin