Traders on the floor of the New York Stock Exchange.

Source: NYSE

The coming quiet holiday week could set fireworks for investors if the Federal Reserve reveals its mindset about a bond-buying plan.

The four-day trading week may see a move of securities after reaching new heights during the past week. The closely followed 10-year treasury yield remained at 1.5%, which is positive for technology, which exceeded 3.2% weekly revenue.

There are very few economic reports other than the ISM Services data on Tuesday. However, the minutes of its last Fed meeting will be released on Wednesday afternoon, և the market has the opportunity to learn more about the Central Bank’s behind-the-scenes discussions on the termination of its quantitative easing program.

“Our main reason is that the rates are moving higher, but for it to be higher, you need a catalyst to get there,” said Brian Dingerfield, NatWest Markets’ head of strategy at G10 FX America. “Either the Fed has to move aggressively on the contraction, or you have to get the data that is really shocking, and you do not have it.”

Friday’s report, which added 850,000 jobs in June, was better than expected. However, the unemployment rate fell short of expectations, rising by 0.1 percentage points to 5.9%. Economists expected the interest rate to fall to 5.6%. The revenue was not strong enough to encourage the Fed to move away from its easy policies more quickly. However, it was seen as a positive but largely flawed image of the labor market.

Dangerfield said there was potential for the Fed’s June meeting minutes to surprise the market, as well as the April minutes.

“Remember, Powell said they were not talking about resentment,” he said, referring to comments made by Federation ome Jerome Powell shortly after the April meeting. “Remember, Powell was very reluctant, those moments were a kind of deviation to the commission.”

The minutes of the April meeting surprised investors when they mentioned that “a number of participants” said that it would be advisable to start discussing bond purchases in the coming meetings if the economy continues to make rapid progress. After the June meeting, Powell revealed early discussions about stopping bond purchases. The Federal Reserve also presented a new forecast, which included two interest rate hikes in 2023, which were not previously mentioned.

The market is extremely sensitive to the details of the Fed’s bond-buying program, as the end of the event will open the door for interest rates to rise for the central bank. – The low exchange rate environment is one of the strongest gains in the stock market since the Fed did everything it could to help the economy cope with the epidemic. Reducing $ 120 billion a month in bond purchases will be the first setback to these extraordinary measures.

“We do not know much about the fact that the Federal Government is thinking of offending,” said Deingerfeld. He said the key information will be when it plans to launch, how soon it will end the program, how it will decide to split the current $ 80 billion’s $ 40 billion mortgage-backed mortgage purchases.

“It simply came to our notice then. Did they even go into details about that conversation? “The more detailed they discuss, the more likely they are to want to move forward.” Fed observers are eagerly awaiting more details on the reduction of the annual bonds around the annual Exxon Hall symposium at the end of August in acks Exxon Hall (Wyoming), then they will start to slow down purchases at the end of this year or the beginning of 2022.

So far, the positive tone in the bond market has helped stocks. The 10-year yield, which moves in the opposite direction, decreased from its highest index of the year – about 1.75%. At that level, technology և growth stocks were under pressure.

But they come back as interest rates fluctuate below 1.6%. The ten-year moving average was 1.43% on Friday, and while a lower interest rate could help tech stocks, the yield level is in stark contrast to the economy, which was expected to grow by more than 10% in the second quarter.

This rate is expected to slow down, but the growth will be more than 7% year-on-year.

Technical transition

Citi Private Bank Chief Investment Officer Stephen Whitting said that as the economy peaked, it was time for investors to move from the popular cyclical trade in technology to growth stocks.

“We see this as a temporary period of mass distortion, and from now on we will be on more stable water for a year,” he said. “I think this gives people, including us, an opportunity to move away from cyclical trade and into sustainable growth.”

Cycles from year to year were one of the better performers. Energy stocks rose 44.5% as oil prices rose and financial stocks rose 25.2%. Shares of the S&P 500, on the other hand, rose 14.3%, slightly behind the S&P 500’s 15.5% gain. Technical resources increased by only 14.9%.

One area that now enjoys getting wet is global healthcare. The S&P 500 healthcare sector has grown by 12.5% ​​so far.

“Health care is above the average cycle. “Health care is a part of the economy that has not fallen so hard,” he said. “Revenues and incomes have been growing modestly every year since the mid-1980s.” He said that the sector has fallen behind the S&P 500 by 10 percentage points since the end of 2019 and has a cheap rating. Large pharmaceutical stocks are one of the best dividend payers.

For the main sectors, for 12 months, the cyclical sectors of industry, materials and energy grew by more than 40%, and technology by 42%.

“Growing stocks have remained rich. “Value stocks in full 12-month indicators have reached growth reserves, but the value of growth shares has not decreased,” he said. “Gradually we are getting more stable performance from technology after this period when it was smooth.”

Wetting said that one of the most attractive areas is cyber security, where demand is high as “significant technological costs”, but the sector has not gone anywhere.

For example, the iShares Cybersecurity and Tech ETF IHAK is below its 52-week high in January and the Global X Cybersecurity ETF BUG is about $ 1 below its February high.

Witting said he likes the names of alternative energy companies involved in digitalisation, including fintech.

He expects the overall stock market to grow at a higher but not as fast pace.

“We want to start the portfolio transition from just removing games … We are transitioning knowing that we have achieved significantly better cyclical performance over the past year. It made people comfortable investing in equity when we could show how cheap they are. ,” he said.

The S&P 500 ended the week up 1.7% at a record 4,352 and the Dow rose 1% to 34,786. The Nasdaq was up 1.9%, ending the week at a record 14,639.

Weekly calendar

Monday:

Independence Day was celebrated

Tuesday

9:45 PM Services PMI:

10:00 ISM services

Wednesday

10: 00 JOLTS:

14:00 FOMC minutes

15:30 Atlanta Federal President Rafael Bostic at the event of the National Association of Journalists

Thursday

8: Unemployed people claim on the 30th

15: Consumer loan at 00

On Friday

10:00 am Wholesale trade!

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