S&P 500 price falls as bond yields surge

S&P 500 price closed the week 2.5% lower as investors rushed to sell equities amid rising bond yields.

Fundamental analysis: Soaring yields are a “healthy sign”, says JP Morgan strategist

JP Morgan Private Bank strategist said the surge in bond yields could be a healthy sign as the global economy continues to recover from the devastating coronavirus pandemic.  

“If you think about rising bond yield(s) or stronger growth, or even a little bit more inflation at this point in the cycle — these are healthy signs,” Julia Wang, executive director and global market strategist at JP Morgan Private Bank, said.

Wang’s statement comes after investors voiced their concerns about a sudden spike in bond yields. The 10-year Treasury yield recently rose to its highest point since the start of the pandemic. 

This surge comes amid growing optimism over economic rebound as coronavirus vaccination campaigns around the world continue. 

“I think that the global economy is going through this cyclical recovery phase and a rising bond yield (is) very much a reflection … of this growth optimism,” Wang added.

A large part of this optimism is expected to materialize in Asia in 2021, as the continent is seeing a significantly strong growth impulse, she said. 

Wang also said the spillover from the U.S. fiscal stimulus will be important for Asian exporters. She said that these exporters are expected to “feel the positive lift of the commodity pick up.”

When it comes to fundamentals, Wang said the circumstances have been somewhat better over the last six months as current account deficits have seen a narrowing at all levels. 

Technical analysis: Trading at the edge

S&P 500 lost about 2.5% this week to hit three week lows below 3790. The index is still up on the month (2.6%) but the long upper wick is threatening to yield a deeper pullback in equities. 

S&P 500 daily chart (TradingView)

The price action is now trading at the ascending supporting trend line that is providing demand for a recovery rally that has started in March last year. A break would open the door for a deeper pullback below 3600. 

Summary

JP Morgan strategist Julia Wang said a recent upwards move in bond yields could be a healthy indicator as the global economy continues to heal from the coronavirus pandemic.

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