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Thoughts on US Bonds and Nasdaq?

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Question asked 03/02/2024

Thoughts on US Bonds and Nasdaq?

Hi guys, thank you again for the work put in. Not really a question, but a penny for your thoughts. I was reading a month or two ago about the U.S. requiring huge funding and flooding the market with record amount of bonds, in turn, lower prices / higher yields. Do you think that this is still a possibility and do you think the U.S. may be facing an issue where they are fighting to get rates lower than the market is setting? I know it seems crazy at the moment! Secondly; I was also reading that the Nasdaq (I think) was getting realigned to remove such the large weighting from the big names. Is this still happening, when, and how do you think this will play out? From my understanding, the index would be going backwards without them. Is this likely to show a much weaker U.S market, especially with q.t. coming to an end? Regards, Simon

Answer

Hi Simon,

Its truly amazing how many articles are written with an emphasis on potential dramatic moves on the downside, I haven’t read many in recent years that equities were cheap and set to power to all-time highs yet here we are. Whether it be bonds or equities we believe the bearish ones outweigh the bullish by a huge magnitude, they simply get more clicks which sells more advertising, and in a high proportion of cases should be read with interest but little more.

Although of course as the saying goes even a blind squirrel will find a nut one day!

Both of these two articles do make interesting reading as you say but we wouldn’t be panicking on either front:

The US does indeed have plenty of debt to rollover and lower interest rates would suit them but until the world loses confidence in the Greenback it won’t be an issue. One of the reasons why the market was strong this week was actually the US Treasuries guidance around bond issuance that was lower than many expected i.e. they are raising less than many thought they would need to.
The NASDAQ & S&P500 have indeed been dragged higher by the “Magnificent Seven” but we’re not sure how they would go about reweighting a market cap-based index, and even if they tried, I doubt that it would be successful, there would be products created that tracked the true market cap of constituents that could prove more popular, and they would attract the $$ perhaps. Things are never as simple as they seem in financial markets!

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LAST UPDATED 02/02/2024 15:14

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