Tech Stocks on Edge as Bond Yields Rise, Earnings Loom

Key Takeaway

• Rising bond yields challenge US equities as earnings season begins, with tech stocks under scrutiny.
• WTI oil futures face their worst day in six weeks, with geopolitical tensions easing and speculative long positions at a high.
• Strong US job data raises bond selloff concerns, with speculation on Fed rate cuts adjusting from three to two this year.

Earnings Season Amidst Rising Bond Yields

As the earnings season kicks off, US equities find themselves at a critical juncture, with rising bond yields posing a significant challenge. The stock market experienced a surge, driven by optimism that a robust economy would bolster corporate earnings. However, the combination of higher stock prices and bond yields puts the sustainability of current valuations into question, especially for tech companies in the Nasdaq 100, which hold a significant premium over the broader S&P 500. This reporting season is crucial, with Wall Street bracing for subdued earnings amidst increasing borrowing costs. The focus on tech stocks is particularly intense, given their valuation premiums and the broader implications for market valuations.

Oil and Gold Markets React to Geopolitical Tensions and Dollar Strength

WTI oil futures are on track for their worst performance in six weeks, following Israel's announcement of troop withdrawal from Gaza, which has eased investor concerns over geopolitical tensions. Speculative long positions in oil are at their highest since October, indicating a potential risk for momentum players amidst rapid exposure increases. Conversely, gold prices have dipped slightly, influenced by the overall strength in the dollar. The oil market is closely monitoring the key level of $83.85/bbl for WTI futures, which could provide support for oil bulls, while the gold market remains cautious amid trading suspensions by China Asset Management to protect investor interests.

Bond Market Tensions and Fed Rate Cut Speculations

The bond market is on edge following strong US employment data, which has pushed 2-year Treasury yields back to pre-December levels. This development has sparked concerns over a potential bond selloff in anticipation of this week's US inflation report. The focus is on whether 2-year yields will reach 5% or higher, with upcoming Fed speakers expected to challenge the market's implied three rate cuts. Traders have adjusted their expectations, now pricing in about 64bps of cuts this year, suggesting a shift from the previously expected three cuts to only two. This adjustment reflects growing speculation that the Federal Reserve may start rate cuts later than anticipated, impacting both equities and bonds.