U.S. stocks edged higher on Monday after hedge fund manager David Tepper said the recent rapid rise in rates is set to stabilize and it’s hard to be bearish on stocks.
The S&P 500 rose 0.1%, while the Dow Jones Industrial Average gained 130 points. The tech-heavy Nasdaq Composite dipped 0.5%.
“Basically I think rates have temporarily made the most of the move and should be more stable in the next few months, which makes it safer to be in stocks for now,” Tepper told CNBC’s Joe Kernen, who shared the comments on “Squawk Box.”
The benchmark 10-year yield has risen sharply in recent weeks in anticipation of more stimulus on top of a booming economic recovery. The 10-year Treasury yield rose 4 basis points to 1.6% Monday. The benchmark rate started the calendar year below the 1% mark.
Tepper believes the sell-off in Treasurys that has driven rates higher is likely over as big foreign buyers like Japan are poised to come in. He also said “bellwether” stocks like Amazon are starting to look attractive after the pullback.
The Senate passed a $1.9 trillion economic relief and stimulus bill on Saturday, paving the way for extensions to unemployment benefits, another round of stimulus checks and aid to state and local governments. The Democrat-controlled House is expected to pass the bill later this week. President Joe Biden is expected to sign it into law before unemployment aid programs expire on March 14.
The stimulus news boosted stocks banking on a strong economic recovery. Shares of retailers, energy companies and banks were higher in premarket trading.
Disney shares added 2% in premarket trading after California eased Covid rules, paving the way for Disneyland to reopen on a limited basis in April.
“We see higher rates largely as a function of earlier and stronger than expected economic recovery and supportive of our positive equity outlook,” Dubravko Lakos-Bujas, JPMorgan’s chief U.S. equity strategist, said in a note.
For March, the Dow Industrials, leveraged more to the reopening, is up 1.8%, while the Nasdaq Composite is off by 2%. Meanwhile, the broader S&P 500 is up 0.8%. The S&P 500 remains less than 3% from an all-time high.
“10-year yields finally caught up to other asset markets. This is putting pressure on valuations, especially for the most expensive stocks that had reached nosebleed valuations,” Mike Wilson, the chief U.S. equity strategist at Morgan Stanley, said in a note.
This battle picked up on Friday when an afternoon rally took some of the sting out of a rough week for high-flying momentum names. The Friday turnaround doesn’t signal that the recent weakness for the market is over, but the divergence between tech and cyclical plays shows that the bullish story remains intact, Morgan Stanley’s Wilson said.
“The bull market continues to be under the hood, with value and cyclicals leading the way. Growth stocks can rejoin the party once the valuation correction and repositioning is finished,” Wilson said.
