Tech shares sell-off to buy travel and energy stocks

Equity and Oil market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi, 

• It’s the running of the bulls in the oil complex
• Tech sectors valuations flash red versus higher US bond yields
• Bitcoin weathers the wrath of Yellen

Investors are quickly rediscovering that not all stocks are created equal in a COVID-19 recovery as expensive tech names sell to provide the source of funds for less expensive travel-related stocks along with energy and other inflation beneficiaries.

But thankfully, for society at large, there is more optimism than fear today, with vaccines showing scientific results on the ground that validate efficacy and effectiveness over transmission, leading the world back to normality starting soon.

At the index level, a promising start wouldn’t be enough to hold US stocks in positive territory as equities eventually tracked lower Monday. That came as the bond sell-off extended further, US10Y yields up another 3bps to 1.37%.

Tech investors continue to run the gauntlet of higher yields and less compelling valuations, but the bond market signal tells investors to trim some overweight tech.

Tech-sector valuations have become extremely sensitive to changes in 10-year bond yields. So, for stock markets with a high-weighting to tech, such as in the US Index, the valuation impact from a rise in bond yields can be very steep.

Speaking overnight, European Central Bank (ECB) President Lagarde indicated the ECB is “closely monitoring” the recent sell-off, potentially suggesting that it is not only investors experiencing some discomfort with higher yields. Watch for a pick-up in PEPP purchases if that is the case.

Oil’s positive momentum continues

The positive momentum continues in the oil complex with investors unabashedly predisposed to a bullish view. So, the unwinding of the Texas cold snap effect and the prospects of some delicate negotiation ahead of the next OPEC+ meetings in early March are imparting little influence on price and giving way to the anticipated commodity reflation effect of Democrats pushing President Biden’s $1.9 trillion stimulus through reconciliation and positive vaccine headlines.

Several significant oil price revisions were announced overnight and may have contributed to the rally of over 3%. Among them, Goldman Sachs see Brent at $70 in Q2 and $75 by year-end as stockpiles deplete Socar’s head of trading believes oil will hit $80 a barrel this year.

On the supply side, boots on the ground suggest the restart of oil facilities in Texas and the Midwestern states are slower than expected. Some shale producers could take at least two weeks to restart.

Bitcoin weathers the wrath of Yellen

Bitcoin sliced through the psychologically crucial 50k level overnight, triggering the wrath of stops syndrome after US Treasury Secretary Yellen’s not so kind words about BTC efficiency as a mode of transaction.

But she’s only a temporary game-stopper. Besides the enormous Middle East consortium interest in the Bitcoin ETF trading on the Toronto exchange that needs to hedge physical, but if corporates start to add physical coins to the balance sheet this year, that is the game-changing panacea.