Nasdaq at record high as investors jump into Tech stocks

Week from 30 August to 5 September 2021

Powell's dovish remarks on tapering propelled tech stocks higher since it is likely that interest rates will remain low for a long time. As an illustration, Apple's stock price climbed 3.84% week-over-week to a record closing high of $154.30. The major U.S. stock indices ended in green with the tech-heavy Nasdaq (+1.55%) outperforming the S&P 500 (+0.58%) for the second week in a row. Yet Friday’s jobs report, the most important event risk in early September, showed job creation at its slowest rate in six months. The U.S. Labor Department said nonfarm payrolls expanded by only 235,000 last month, missing economists' forecasts. It is a disappointing gain after two months of solid payroll growth. The impact of delta variant on the U.S. economy may have been underestimated.

In Europe, the MSCI EMU treaded water (+0.17%) as factory activity lost momentum last month. In Asia, the Shanghai Composite and Nikkei jumped +5.38% and +1.69% respectively, recouping the losses suffered in mid-August. Yet Chinese factory activity also weakened amid social restrictions.

In the same vein, the equity rally in emerging markets showed no signs of slowing (MSCI EM up +3.40% after a sharp rebound at the end of August), boosted by a weaker dollar.

U.S. Treasury yields remained low. The key 10-year Treasury yield hovered around +1.30% all week long, before closing at +1.327% (+2bps week-over-week). The 10-year Germany bond yield traded up 6bps at -0.36%.

Investors shift from cyclicals to defensives

Unlike the previous week, defensive sectors led the pack. Real estate was the best performer (+3.99%), followed by health care (+1.70%) despite the FBRX stock (Forte Biosciences) implosion (-82%). The company indeed announced dismal results from a phase 2 study of its only pipeline candidate FB-401 (treatment of atopic dermatitis). Consumer staples (+1.53%) and utilities (+1.39%) also fared well.

By contrast, low bond yields pressured bank stocks, with the S&P financials index ending down 2.45%. Energy sector was the second largest detractor to performance in the S&P 500 (-1.44%) as market players fretted about possible longer-term impacts of Hurricane Ida on offshore oil production.

Emerging debt shines amid weakening Dollar

The dollar index slipped again in the wake of Powell’s speech (-0.61% over the week). A weaker greenback continued to lift gold (spot price up +0.56% at $1,827.73/Oz) and emerging debt (+1.16% in local currencies). As was the case last week, investment grade corporate bonds closed mixed (-0.19% in Europe, +0.19% in the U.S.). U.S. high yield bonds jumped +0.46% while their European counterparts edged up +0.16%.

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