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US stock market is growing, but leaders are changing

In the markets, purchases of risky assets intensified again. The rally of commodity currencies and the pound is stretching more and more. As confirmation of buying power, the Dow Jones30 rallied 1.35% and futures now exceed 32,000. The Nasdaq100 found support after falling below the 50-day moving average earlier in the week, and the S & P500 reversed to gains as soon as it touched its own line. Thus, the prevailing bet on the markets is the return of the world economy to normal. In this race, former leaders like FAANG and Tesla look a little “tired” after accelerating last year. Traditional value equities and commodity markets have a chance of at least narrowing the gap with high-tech companies. The NASdaq100 played back losses on Powell’s assurances that the rise in US long-term bond yields is a sign of optimism about the economy, not fear of inflation. However, it is worth considering this movement from a different angle. The increase in yields makes borrowing less profitable, which is negative for growing companies that raise capital to finance growth and are far from the phase when they will return it to shareholders. In addition, higher interest rates push up the denominator of projected corporate earnings. That is, they make them more overvalued in real terms than at lower rates. That is why this trend puts pressure on growth stocks. Yesterday we saw a simultaneous increase in long-term government bond yields and a recovery in the Nasdaq index. However, it is hardly worth drawing far-reaching conclusions from this. Further development of growth in government bond yields will keep the market focus on value stocks and commodity assets. This trend was in full force in February and may remain with us for the coming months or even years. Also note that since the end of January, Apple and Tesla shares, as litmus tests of a high-tech boom in the stock market, have been pulling indices down, not up. At the same time, commodity assets are flying into the skies, and risk-sensitive currencies are updating 2-3-year highs. Thus, AUD, CAD, GBP in pairs with the dollar approached important round levels: AUDUSD is approaching 0.8000, USDCAD is testing 1.2500, and GBPUSD at 1.4200 was near the peaks of 2018, returning to levels before Brexit. Nevertheless, this does not at all exclude short-term pullbacks within the framework of the general trend. It is possible that at the close of February, raw materials may fall under the fixation of short-term profits, as well as a number of currencies, which may require a healing correction for further growth. _____________ Alexander Kuptsikevich, Lead Analyst, FxPro

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