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Analysis – Where does the revenue go? Investors weigh US jobs data against Delta concerns

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NSDavid Randall, Saqib Iqbal Ahmed and Louis Krauskoff

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New York, August 6 (Reuters)An unexpectedly powerful July job count has bolstered investors who believe Treasury yields will trend higher for the rest of the year, potentially weighing on a rally that has pushed stocks to record highs.

Standard 10-year Treasury yields, which moved inversely to prices, stabilized About 1.3% on Friday, the highest level since July 23, After Labor Department data showed that the US economy added 943,000 jobs final month. Analysts polled by Reuters expected 870,000 jobs to be added.

Some investors believe the powerful jobs numbers could support the view that the Federal Reserve, facing rising inflation and robust growth, may need to unwind its ultra-simple monetary policies sooner than expected. Such an outcome could drive returns higher while depressing growth stocks and other areas of the market.

However, this view is complicated by concerns about a spike in COVID-19 cases across the United Nationsited countries That threatens to weigh on growth and the Fed’s insistence that the current rise in inflation is temporary.

In any case, the data is likely to intensify investors’ focus on this month’s central bank seminar in Jackson Hole, Wyoming. And if August job growth holds out just as much, the summer hiring spree will hoist the stakes for next month’s Federal Reserve meeting, when the central bank may outline its plans to roll back monthly asset purchases.

Simon Harvey, senior FX analyst at Monex Europe, said the data “gives the markets a considerate of direction. It makes the upcoming Jackson Hole event and the Fed’s September event live.”

Among the effects of higher yields, there may be a drag on highly rated technology and growth stocks, as higher interest rates erode the value of The tallest– coming cash flows On which many growth stocks are valued. These stocks have risen since yields began declining in March, helping lift the broader markets. For example, five technical names or related to technology alone – Apple AAPL.OMicrosoft MSFT.OAmazon AMZN.OAlphabet Alphabet Google.O and Facebook FB.O It accounts for more than 22% of the weight of the S&P 500.

Higher yields could also boost the allure of so-called value stocks – the shares of banks, energy companies and other economically sensitive companies that slumped upwards earlier in the year but have struggled in the former few months.

Growth Index Russell 1000 .RLG It has risen by about 18% since late March, compared to a rise of about 6% for the corresponding value index .RLV.

TDow Jones Industrial Average DJI and S&P 500 .SPX It hit a record lofty close on Friday, up 0.4% and 0.2%, respectively, while the tech-heavy Nasdaq nineteenth It fell 0.4%.

Strong economic data that raises returns can pave the way for investors to move from growth companies to other companies economically sensitive said Art Hogan, chief market strategist at National Securities in New York.

Despite this, powerful data could make dollar-denominated assets more attractive to investors looking for returns, which could boost the US currency. A powerful dollar can be a headwind for US exporters as it makes their products less competitive abroad, while hurting the balance sheets of local multinationals that have to convert foreign profits into dollars.

The dollar index rose 0.57 percent late on Friday, on track for its biggest daily acquire since mid-July.

Goldman Sachs, BofA Global Research and BlackRock are among the companies that have said yields will rise to nearly 2% by the end of the year — an outcome that could be accelerated if a powerful economy prompts the Federal Reserve to begin unwinding its ultra-simple monetary policies faster than expected. Others, such as HSBC, have called for yields below current levels.

“We believe the recovery in lengthy-term Treasury yields that has occurred over the former week or so is a sign of things to come,” said analysts at Capital Economics. said in Note published on Friday.

“We believe that growth in the United States will be very robust in the coming quarters, and that the recent rise in inflation there will prove to be much more steady than anticipated,” the company said.

(Reporting by David Randall, Saqib Ahmed, and Louis Krauskoff; Editing by Ira Eosbashvili, Leslie Adler and Sonia Hipstel)

((; 646-223-6607; Reuters Correspondent:

The opinions and opinions expressed here are those of the author and do not necessarily reflect the views and opinions of Nasdaq, Inc.


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