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The consumer price index data shows that the inflation surge is in control within expected limits. Also, the falling Treasury yield boosted investor confidence in the market. UBS stays bullish on stocks for the next year.
On Wednesday, March 10, the Dow Jones Industrial Average shot 460 points hitting its new record high of 32,297. The recent rally comes as House Democrats pass a record $1.9 trillion stimulus package. On the other hand, the falling bond yields and receding fears of inflation helped fuel the rally.
Dow Jones Record Boosted by New Stimulus
Along with Dow (INDEXDJX: .DJI), other indices also registered a strong rally. Financial and energy stocks helped the S&P 500 (INDEXSP: .INX) to surge 0.6% ending the trading session at 3,898.81. The Nasdaq Composite (INDEXNASDAQ: .IXIC) ended 0.01% in red at 13,068.83 levels. However, a day before Nasdaq surged 3.7% in its strongest single-day rally since November 2020.
On Wednesday, March 10, the House Democrats passed the $1.9 trillion COVID-19 relief bill. The bill is now further sent to President Joe Biden who is likely to sign it by Friday. The US President already said that stimulus checks of $1400 shall go out starting this month. Goldman Sachs managing director Chris Hussey said:
“Today’s strength is coming from pro-cyclical stocks as investors continue to oscillate back and forth between beneficiaries of cyclical growth and those better secularly positioned”.
Some of the beaten-down and cyclical stocks showed good activity during Wednesday’s trading session. The S&P 500 energy sector 2.6% thereby pushing its year-to-date gains to above 39%.
Subsiding Inflation Fears and Falling Treasury Yields
The inflation data released on Wednesday finally eased out the worries of inflation. The Labor Department said that consumer prices increased only 0.4% during the last month of February. The consumer price index gained 1.7% on a year-on-year basis which was in tune with the expectations. Art Hogan of National Securities told CNBC:
“The biggest concern that markets have had over the last month or so has been inflation running hotter than we estimate. Clearly CPI puts that to rest, at least for today. The yield on the 10-year has ceased going parabolic.”
On the other hand, the 10-year Treasury Yield also dropped 2 basis points to 1.52%. Also, the 10-year Treasury auction for $38 billion in notes registered adequate demand. This has eased concerns that America’s growing debt burden isn’t high enough to create any trouble for the market. bond prices have moved in the opposite direction to the yields. Kimberly Woody, portfolio manager at Globalt Investments said:
“I think bonds are still oversold at the point. In terms of rates, we are still in a very defined trading range. I think we will see lower rates before we see higher rates.”
Swiss financial giant UBS has turned bullish for stocks over the coming year with the incoming stimulus.
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