Lower U.S. Treasury yields pushed up shares of high-flying stocks on Wall Street on Tuesday. These are usually the high beta stocks.
In early afternoon trading, the benchmark 10-year Treasury Note was yielding 1.66%, down from 1.72% on Monday, but still three times higher than the August 2020 levels.
Lower bond yields make risky assets more appealing. Thus, the a big rally in high-flying stocks like Roku Inc. (ROKU, Financial), Jumia Technologies AG (JMIA, Financial), Lemonade Inc. (LMND, Financial) and Datadog Inc. (DDOG, Financial).
| Company | One-day gain* | 12-month gain |
| Roku | 7.41% | 332.75% |
| Jumia Technologies | 7.55 | 1,428 |
| Lemonade | 5.73 | 121 |
| Datadog | 5.90 | 166 |
*As of 1 p.m.
U.S. bond yields have been rising in recent weeks, reflecting both optimism about the economic recovery and fears of inflationary pressure. Inflation undermines the value of fixed-income securities like bonds and mortgages, pushing their prices lower and yields higher.
In February, wholesale inflation was 2.8%, while retail inflation was 1.7%. These are the most significant advances since October 2018.
Last Friday, inflationary fears were reinforced following a labor market report showing the U.S. economy added 916,000 jobs in March. That's double the February gains, with the unemployment rate dropping down to 6%.
A strong labor market is usually followed by wage hikes, which push inflation higher.
But bond markets may have been misreading the recent job gains and their impact on inflation. Most of these jobs are filled by people returning to work a old wages rather than new jobs filled at higher salaries.
Meanwhile, unemployment remains high, meaning that the U.S. economy is still far from full employment, which economists see as the threshold for higher inflation.
Apparently, markets must have been reading bond markets right on Tuesday, warming up to a recovering economy that is a long way from bringing back the old villain, inflation, and rising interest rates.
Disclosure: No positions.
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