stocks yield yields

3 Stocks To Watch, And Why The Rising Yield Story Is Overblown

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3 Stocks To Watch, And Why The Rising Yield Story Is Overblown

 

The focus this week will undoubtedly be on yields, with the 10-year Treasury rates climbing to over 2.8 percent this past week. Since the market is so obsessed with yields, let’s talk about yields and be smart about it. Plus we cover 3 stocks to watch and the S&P 500.

us 10-year treasury yield minus German 10-year yields

Mott Capital Management, Michael Kramer

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Spreads

The spread between the US 10-year and the German 10-year bonds stand at about 2.10 percent, and we should care about these global yields. How long will it take before European bond buyers or Japanese bond buyer come flocking to our debt? Not long.

Historically the spread between the two is at levels not seen in a very long time. The chart below shows one would need to go back to the late 1980’s to get the current spread.

yield interest rates

The spread between US 10-year and Japanese JGB 10-years is standing at nearly 2.75 percent.

jgb 10-year yields

One would have to go back to 2006 to see the same spread between the US bonds and JGB’s.

jgp yield and interest rates

In Need Of Yield

We live in a global market and a world thirsty for yield, investors from around the world may soon be soaking up all the liquidity.

But even so, with the yields on the short-end of the curve induced by Fed pushing rates higher, the long-end of the curve was very stubborn in not adjusting higher. It would seem the long-end was unwilling to admit that the US economy was growing and that inflation was starting to creep back into the system. Now the long-end must rise, or risk inversion.

libor

But again, inflation may be creeping in, but it is no-where near runaway. Trimmed Mean PCE is tracking at only 1.7 percent, while the consumer price index is tracking at just over 2 percent.

inflation

Inflation Rising

But Oil has been steadily rising, and other commodities have been increasing as well, and therefore there is a genuine risk of inflation continuing to grow into the future, which the market is now beginning to factor in.

Will yields continue to rise, yes. But again, spreads in the global bond market are very wide now versus the US Treasuries, and that should bring buyers into our bond markets. Additionally, inflation is being to heat-up, but it at the very early stages, and the risk of overheating at this point seems a distance away.

S&P 500

Stocks are likely to remain volatile as investors try to feel there way through everything. Again, as I noted the other day, I see downside right now to around 2,740 at the moment.

S&P 500

Amazon

I think Amazon has further to fall, the stock is still at overbought levels, with an RSI above 70. My concern is the green uptrend, and a break below $1,400 likely takes the stock to around $1300, with a risk to $1250.

amazon

Look there is no doubting the earnings results and revenue growth. But the stock is up nearly 71 percent over the last 52-weeks and almost 23 percent in 2018. Watch $1,400.

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Tesla

It will be another busy earnings week with Tesla likely be the big story. Everyone will be eagerly listening to what the company says about the Model 3, and of course the cash position.

Options are pricing in about a 9 percent rise or fall after Tesla reports results, based on the long straddle options strategy set to expire on February 16, using $342.50 strike price.

Analysts are looking for the company to report revenue for the fourth-quarter rose nearly 43 percent vs. last year to $3.261 billion, while losing almost $3.11 per shares.

But for Tesla, it will be about cash flow, capital expenditures, and the cash position. Over this past week, Tesla raised nearly $550 million in an asset back securities deal. 

The conference call or the press release will hopefully give investors an idea where the company is with ramping up production for the Model-3, and whether they remain on target for 2,500 cars per week by the end of the first quarter.

The chart suggests some mild support around $335 for now, but honestly, I’m not sure technicals matter going into these results.

tslA

Alkermes

Finally, I will be watching Alkermes, whose shares jumped by nearly 9 percent towards the end of Friday. There was news reported by Bloomberg that Nektar was considering a sale, and for some strange reason, the fly.com mentioned Alkermes was rising because Nektar announced it would sell itself. The report notes the two companies have a similar oncology drug. But both Alkermes drug and Nektar’s drug that are similar are only in Phase 1. So I don’t see the connection. Keep in mind Alkermes has data coming in its head-to-head trial for ALKS 8700, for MS, vs. Tecfiedera soon, which Biogen just signed a licensing deal with Alkermes for, and data for ALKS 3831, its drug for schizophrenia coming soon.

The upcoming data for Alkermes is the driver. Mind you Nektar finished Friday lower.

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Michael Kramer of Mott Capital own shares of TSLA and ALKS

Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future.

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Tags: #alkermes #tesla #amazon #yields #stock #rates

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