ASX set for gains as ‘everything rally’ reignites

Not even a week’s worth of evidence that the US economy is roaring back from the pandemic has been able to derail the concerted rally sweeping stocks and bonds.

The S&P 500 Index gained alongside 30-year Treasury bonds for a fourth-straight week, the longest in-tandem rally since August 2008, according to data compiled by Bloomberg. The Nasdaq 100 Index also rose for a fourth week, two months after a spike in rates sent high-valuation tech shares spiralling as investors priced in an economic boom.

Wall Street capped another positive week with gains on Friday.

Wall Street capped another positive week with gains on Friday.Credit:AP

The S&P 500 rose 1.4 per cent in the five days to end at a record. The Dow Jones Industrial Average added 1.2 per cent and the Nasdaq 100 gained 1.4 per cent. Both closed at all-time highs on Friday (US time), with rises across the board.

The Australian sharemarket is poised for gains on Monday, with futures pointing to a jump of 37 points, or 0.5 per cent, at the open.

It was anything but guaranteed that blowout data would juice demand for both stocks and bonds, particularly after the March selloff that sent rates to multi-year highs. Instead, when retail sales and jobless claims shattered forecasts, benchmark 10-year Treasuries rallied the most since August. Breakeven inflation rates barely budged, clearing the way for investors to rediscover their affinity for megacap tech stocks.

That Treasuries took the data in stride suggests investors may be pricing in a more “normalised” growth environment ahead, according to John Hancock Investment Management’s Emily Roland. That’s different from prior expectations for a supercharged economic boom that some feared would spark runaway inflation that would dent demand for long-term bonds and threaten corporate profits.

“It’s almost as if it just can’t get any better than this, because at the same time you have inflationary pressures that are remaining contained,” Roland, the firm’s co-chief investment strategist, said on Bloomberg Television. “Awesome economic data, inflationary pressures remain contained, and you’re seeing this nice favourable reaction from the stock market.”

Ten-year Treasury yields hovered near 1.6 per cent, 17 basis points below the late-March peak.

The revival in megacap tech shares has come at the expense of one of 2021’s highest conviction trades: the rotation into industries that will benefit most from the economic revival. A flurry of vaccine breakthroughs in early November sent billions flowing into financials and industrials — some of the heaviest weightings in value benchmarks.

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