Market Extra: Why a rally in growth stocks could signal ‘peak’ Fed hawkishness has passed

by | Jul 6, 2022 | Stock Market

Growth stocks have outperformed value equities recently as investors begin to question if the Federal Reserve has passed peak hawkishness already with its plans to raise rates to combat high inflation. Recent bets on fed-funds futures have pointed toward a potential pivot back to rate cuts at some point next year, while 10-year yields on U.S. government debt have fallen below 3%. Corporate bond spreads have widened as recession worries bubble up. But the decline in Treasury yields appears to be giving a lift to technology and other growth stocks over value-oriented equities.

“While it’s too early to declare the value outperformance ‘over,’ we do think the outperformance of tech recently is notable, because if it continues that will be a strong signal that the market is now looking past future rates hikes towards eventual rate cuts in 2023,” said Tom Essaye, founder of Sevens Report Research, in a note Wednesday. “If tech can mount sustained outperformance that will tell us the market thinks the Fed has passed ‘peak hawkishness.’” Long-term Treasury yields have been falling recently because investors are worried that the U.S. economy is slowing and “a recession is a distinct possibility,” said Tom Graff, head of investments at Facet Wealth, by phone.  The yield on the 10-year Treasury note jumped as high as about 3.482% in June, before falling Tuesday to 2.808%—the lowest since May 27 based on 3 p.m. Eastern Time levels, accordin …

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