Wall Street rallied on Monday, with the broader market setting marginal new highs and technology shares recovering lost ground, as investors struggled to balance economic optimism against steadily rising Treasury yields.
The Dow Jones Industrial Average rose by over 100 points and the S&P 500 Index also inched to a new high, bolstered by the signing of a new $1.9 trillion stimulus bill that’s poised to spur consumer spending and ignite economic growth. Most Americans are poised to receive $1,400 stimulus checks, which began arriving over the weekend, and Wall Street economists have already begun hiking their gross domestic product (GDP) estimates for the remainder of the year, amid expectations that the stimulus will unleash a consumer rebound.
Still, Washington’s aggressive spending spree, and super-accomodative monetary policy, has focused growing attention on runaway deficit spending — which is at least part of the reason why government borrowing costs have begun to spike, even as the Federal Reserve remains committed to fostering growth through lower yields and higher inflation.
Last week, the benchmark 10-year Treasury yield spiked to a pre-pandemic high around 1.6%, up about 50 basis points in a month. Another warning sign has emerged via Bitcoin (BTC-USD), where prices over the weekend topped $60,000, a new record high before paring those gains on Monday.
In a note to clients, analysts at Oppenheimer underscored that “government bond prices tend to suffer as economies exit a recession, while equities tend to benefit from an improvement in economic growth that is expected in a recovery, and which can be reflected in revenue (sales) and earnings (profit) growth for businesses.”
The firm added: “As the exit process from the pandemic moves ahead notwithstanding normal speed bumps and setbacks typical when exiting a major crisis—more will be revealed as to how efficient or inefficient the latest tranche of rescue stimulus will be in getting the economy over the hurdles that lie ahead.”