The Dow hit record highs on Friday, as tech cut some losses to close above the lows of the day even as U.S. rates climbed to pre-pandemic levels, while the reflation trade continued to boost cyclical stocks.
The Dow Jones Industrial Average rose 0.90%, or 293 points, to end at a closing record of 32,778.64, and the S&P 500 rose 0.10% to 3,943.34 and the Nasdaq Composite was down 0.59%, but had been down about 2%.
The 10-year U.S. Treasury yield jumped to 13-month highs of 1.642% on bets for a faster pace of inflation as the economy is expected to stage a stronger recovery thanks to another round of stimulus.
“The continuation of massive funding will lead to rising inflationary implications in the longer-run as the economy – eventually – attempts to grow organic legs,” Stifel said in a note. The uptick in inflation through the summer months will ultimately prove modest, reinforcing the “Fed’s nonchalant approach to rising inflation expectations or a backup in rates,” it added.
Tech closed in the red, but well off its session lows despite the uptick in rates that tends to sour the outlook on long-term growth companies that are yet to generate positive cash flows.
Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon.com (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Google-parent Alphabet (NASDAQ:GOOGL) were in the red.
Sentiment on Apple was also hurt by signs of weak iPhone demand. iPhone shipments in February were down 14% according to Morgan Stanley (NYSE:MS), citing data from the China Academy of Information and Communications Technology. "This is consistent with our view that lengthening replacement cycles are likely to drive lower and lower demand peaks in iPhone redesign years," Morgan Stanley said.
Chinese tech stocks were led lower by a 4% fall in Alibaba (NYSE:BABA) on fears of a regulatory crackdown on tech. The Wall Street Journal reported that China’s antitrust regulators are weighing up a record fine for the e-commerce giant.
Cyclicals, which move in tandem with the economy, continued to ride the wave of economic optimism, led by gains in financials and industrials, with the latter boosted by Boeing (NYSE:BA) and Caterpillar (NYSE:CAT).
Boeing received an order for 24 737 Max 7 jets from private equity firm 8888 partners, which has a stake in Canadian low-cost carrier Flair Airlines.
Some on Wall Street suggest that cyclicals will remain in favor as long as rates continue to climb. “Short duration is likely to outperform long duration if interest rates rise towards our rates strategists’ targets in 2Q 2021, Goldman Sachs (NYSE:GS) said, forecasting an additional 25 basis points of upside to the 10-year U.S. Treasury yield by 2Q 2021.
In other news, AMC Entertainment (NYSE:AMC) rallied 9% after L.A. County said that Los Angeles will be lowering Covid-19 restrictions to the second tier of California's reopening system, paving the way for movie theatres to reopen.