Economic data generally serves as the primary catalyst for stock markets, and last week was no different. On Thursday, the US 10-year bond yield had its biggest daily spike since 2017, setting the tone for the days that followed. Despite the jolt, equity markets managed to erase most of their losses.
The primary factor driving the bond yield increase was speculation that the economic data may be bottoming out and that the Federal Reserve may start tapering its quantitative easing programs. The yield increase had wide-ranging implications across various sectors, with many stocks taking a hit as a result. But there were some bright spots as well, with technology and homebuilders among the standout performers.
Investors favored technology and homebuilder stocks in the wake of the bond yield spike, reflecting the good news behind the spike. For the tech sector, Microsoft, Apple, and Amazon were among the top names. These stocks were favored on the basis of the rally in the tech sector over the past few months, with many expecting the strong growth for the tech sector to continue.
As for the homebuilders, the focus was on low mortgage rates encouraging people to purchase homes. The bond yield spike could have an adverse effect on housing sales because it raises borrowing costs. But that was more than offset by the improving economic indicators in the housing market, with home sales increasing in April and May. The figures, combined with low mortgage rates, have made it easier for people to purchase homes.
Overall, the bond yield spike was viewed as a positive for equities, with money flowing into the sectors that are perceived to benefit from better economic conditions. Technology and homebuilder stocks were among the main beneficiaries, providing investors with an opportunity to capitalize on the favorable market conditions. With economic data looking set to improve, following the trend and investing in these stocks could reap rewards in the future.