Tech Stocks Are Getting Crushed Again Because Yields Won’t Stop Rising

But then yields started rising again. The 10-year Treasury hit 1.74% Thursday morning, up from about 1.3% a month ago. That’s hurting the Nasdaq Composite, home to many richly valued, high-growth companies.

The problem isn’t inflation expectations though. It’s math. Higher interest rates hurt high growth stocks that generate most of their cash flow far in the future. Higher rates have less of an impact on slower growth companies that are paying dividends rather than spending on the future.

In fact, the interest rate trends are turning the Dow Jones Industrial Average into the new Nasdaq. The Dow has outperformed its highflying tech cousin by about 10 percentage points over the past few weeks.

That makes sense. The Nasdaq’s top-10 stocks are all tech names and they make up 40% of the total index. The five largest weightings in the Dow are UnitedHealth Group, Goldman Sachs, Boeing, Home Depot, and Amgen.

As the economy recovers, the Dow just might be the best index for 2021.

—Al Root

*** On this week’s episode of The Readback podcast: Moderna’s stock debut was once termed a broken IPO. Now the company is saving the world. Listen here.

***

Fed Paints Brighter Economic Outlook While Holding Rates Steady

The future looks brighter, according to new economic projections released by the Federal Reserve on Wednesday. The central bank expects gross domestic product to rise and unemployment to continue to fall. And it will hold interest rates steady for now.

• The U.S. GDP will grow by 6.5% in 2021, up from the 4.2% forecast in December. Unemployment, meanwhile, will drop to 4.5% by year’s end, down from 6.2% reported in February.
• A rosier economic picture also means higher inflation, which the Fed says will rise to 2.4% in 2021. That should taper off in 2022 and 2023, however, to 2% and 2.1%, respectively.
• As expected the Fed said it will hold rates steady and continue buying at least $120 billion in Treasury bonds and mortgage-backed securities a month. Treasury yields have risen recently in sync with the improving outlook, while interest rates on 30-year mortgages topped 3% for the first time since last summer.

What’s Next: The Fed will continue its so-called easy money policies until 2023, a clearly positive sign for financial markets. “It would be hard to craft a more constructive statement than this,” Evercore ISI said in a client note.

—Anita Hamilton

***

Americans Get an Extra Month to File Their 2020 Taxes

For the second year in a row, the Internal Revenue Service is pushing back the deadline for filing federal tax returns. The new deadline for 2020 returns is May 17.

• “This continues to be a tough time for many people, and the IRS wants to continue to do everything possible to help taxpayers navigate the unusual circumstances related to the pandemic,” IRS Commissioner Chuck Rettig said.
• The postponement applies to individuals, including those who pay self-employment tax. It doesn’t apply to estimated tax payments, which are still due on April 15. It also does not apply to state filing deadlines.
• The IRS has been struggling with a backlog of tax returns as it is simultaneously tasked with issuing a third round of stimulus checks. It has yet to process an estimated 24 million returns from 2019, the Washington Post reported, including 2.4 million individual paper-based returns.
• Tax changes included in the stimulus bill have complicated filing as well. The IRS plans to issue a new worksheet for paper filers eligible for the $10,200 tax exemption for unemployment benefits but has yet to issue guidance to people who submitted returns before the stimulus bill passed.

What’s Next: The agency delayed the opening of tax season to Feb. 12 early this year as it was processing checks from the last round of stimulus. As of March 5, the IRS had received 18% fewer returns in 2021 compared with the same time last year.

—Anita Hamilton

***

Disney Plans to Reopen California Parks on April 30

After being shut for more than a year, Walt Disney’s California theme parks have a reopening date.

• Disney said on Wednesday that Disneyland and Disney California Adventure will open to guests April 30. Guests can check into Disney’s Grand Californian Hotel and Spa on April 29. Disney stock rose 0.5% on Wednesday.
• California breaks down its reopening process by county. The state loosened the qualifications for exiting the most restrictive tiers. It previously said theme parks could reopen in the “red tier” starting April 1.
• Theme park reservations will be limited and only California residents may visit the parks under current state guidelines, the company said in a statement. More than 10,000 workers would be returning, according to The Wall Street Journal.

What’s Next: In addition to Disney, Knott’s Berry Farm plans to reopen in May. Six Flags Magic Mountain said on Twitter that an official opening date will be posted on its website in the near future.

—Connor Smith

***

Demand for Gasoline May Never Reach Pre-Pandemic Highs

Global demand for gasoline has likely already peaked due to the rise of electric vehicles and greater fuel efficiency in gas-powered ones, according to a new report from the International Energy Agency, a Paris-based energy watchdog.

• Gasoline demand fell from 26.6 million barrels a day in 2019 to 23.7 million barrels in 2020, a drop of 11%. The IEA predicts that annual demand will not exceed 25.9 million barrels through 2026.
• “We do not think gasoline consumption will come back to 2019 levels again,” said IEA Executive Director Fatih Birol.
• The agency projects that the number of electric vehicles will increase from 7.2 million in 2019 to 60 million by 2026. Beyond Tesla and smaller EV startups, big car makers like Volvo and General Motors have said they would go all electric by 2030 and 2035, respectively.
• Last month, the U.S. Energy Information Administration said it expects gasoline consumption in the U.S. to peak in 2022 due both to fuel economy improvements and “alternative-fueled vehicles that further displace motor gasoline use.”

What’s Next: Demand for gasoline is projected to continue increasing in emerging markets like India, China and Indonesia even as it falls in wealthier, industrialized nations.

—Janet H. Cho

***

Europe Struggles With Vaccine Supply Chain Disruptions

U.K. health authorities warned Wednesday that the country would face a severe shortage of Covid vaccines in April, as the European Commission threatened to trigger emergency controls on the production, distribution and exports of the jabs.

• Britain’s National Health Service said Wednesday that there would be “a significant reduction in weekly supply available from manufacturers” beginning at the end of March, for about a month, meaning that the vaccination of the under-50 will be delayed.
• Government officials said a shortage of the Oxford/ AstraZeneca vaccine was mostly to blame, but insisted that the U.K. would still meet its target of vaccinating all adults by the end of July.
• European Commission President Ursula von der Leyen threatened Wednesday to use emergency powers to block exports of vaccines to Britain, noting that the EU has exported 10 million doses of vaccines to the U.K., but received none.
• “We will reflect on whether exports to countries with higher vaccination rates than us are still proportionate,” she said.
• The European Medicines Agency is due to issue a report Thursday on the safety of the AstraZeneca jab, which has been suspended in most of the EU on fears of undesirable side effects.

What’s Next: The U.K. delay shows that AstraZeneca’s production problems are not limited to the EU, but they threaten to escalate the London-Brussels dispute.

—Pierre Briançon

***

I want to buy a home that needs a lot of repairs and renovations, but I’m almost 50 years old. Is it worth it? How long does it take for home improvements to pay off?

If you watch a lot of shows on HGTV, the idea of buying a home in need of some TLC for a bargain and sprucing it up sure can sound appealing. Many among us fantasize about embracing their inner interior designer, taking a rundown home and giving it the Chip and Joanna Gaines treatment. In the interest of honesty, I’ll admit that I’m guilty of such day dreams.

I can say with a fair degree of confidence that you already have the right instincts here. There are plenty of reasons to be skeptical about taking on such a huge project. The biggest one: They don’t usually pay off.

Smaller-scale home-improvement projects might have a better return on investment. For instance, a can of paint or two costs hardly anything, and research shows that painting the rooms in your house the right color can add as much as $3,000 to the home’s sale price.

With anything bigger than that, you’re unlikely to recoup your investment. Remodeling Magazine each year puts out a list of the home upgrades that fetch the biggest returns. The 2020 edition of this report showed that on average not a single home-improvement project sees a 100% return. The closest you could come—adding a manufactured stone veneer to your house—was a 96% return on average. And in most cases, the returns on renovations had fallen between 2019 and 2020.

Americans generally view owning a home as a financial investment—and the four-bedroom home with a white-picket fence surely factors in the American Dream. Many people go into homeownership hoping to see their equity grow over time—with the goal of passing that money onto their children or using it as a cushion in retirement. But when you compare real estate to other assets, it’s clear that owning real estate is more complicated than that.

Read more here.

—Jacob Passy

***

—Newsletter edited by Anita Hamilton, Stacy Ozol, Mary Romano, Ben Levisohn, Matt Bemer