The main reasons behind the initial fall remained the same - the significant increase in interest rate hike expectations, due to evidence that the inflationary process is far from over, especially when everything indicates that they are being transferred to wages. No central bank wants to experience a spiral of wage increases, and rising rates are a solution for countering it.
But at the same time, more and more analysts and investors consider that the market is overreacting to this potentially more restrictive monetary policy scenario.
The 10-year bond yield reached 1.80%, with the average forecast for this year and the first part of 2023 hinting at an increase up to 2.20%. Some analysts argue that a rise of 100 or 200 basis points above these levels would be necessary to hurt the valuation of major companies and, therefore, on the indices in which they are included.
All this without counting those other stocks from the financial or energy sectors appear to take advantage of this scenario of higher rates with increased growth expectations.
Interest rates increases appear to be taken for granted. In this regard, President Powell’s statements scheduled for Today in the US Senate can shed even more light on the matter.
And as for the potential economic growth, the Atlanta Fed's GDP growth estimate for the fourth quarter was revised upwards yesterday to 6.8%.
Therefore, yesterday we can say that the market suddenly changed its mood towards a somewhat more optimistic tone. An example of this is the performance of the #Tech100 index. After falling almost 3% in early trading, it recovered almost everything to close without changes, an extraordinary rebound that occurred in the last hours of the session. This denotes that the buyer interest continues to exist, and from a technical point of view, it signals a clear rejection of the downward break for the support zone located around 15,500.
This could be attributed to the technological stocks’ recovery. But as we already pointed out, the cyclical stocks have been enjoying a better performance since late 2021.
As we can see in the "OPEC Thematix" graph below - a CAPEX.com product that combines the performance of the big oil companies ExxonMobil, Total, Chevron, and BP in a single derivative product - it gained around 15% from December 2021, reaching the highest levels since January 2020.
The rotation from stock value to cyclical stocks that so many analysts have been predicting for a long time seems to be already taking place.
Sources: Bloomberg, Reuters.