Translation in English: U.S. Treasury yields soar, why is the U.S. stock market

The May non-farm report significantly dampened expectations for interest rate cuts, causing a plunge in U.S. Treasuries, with the benchmark 10-year and the more rate-sensitive 2-year yields both rising by more than 16 basis points on Friday.

In contrast, U.S. stocks displayed composure, briefly falling in the morning session before quickly regaining some lost ground.

Supported by technology stocks, the S&P 500 and the Nasdaq Composite both turned positive at one point during the session, with the former closing near an all-time high.

Generally speaking, a sharp rise in yields would reduce the appeal of stocks, putting pressure on the stock market. Where did the relative resilience of U.S. stocks on Friday come from?

The "soft landing" signal light lit up again, with speculative sentiment soaring, firmly supporting U.S. stocks.

"From an economic perspective, a significant increase in employment and rising wages is a good sign," said Charlie Ripley, a senior investment analyst at Allianz Investment Management, in a media interview, adding that this is good news for corporate profits.

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Ripley believes that despite the dousing of interest rate cut expectations, U.S. stocks remain confident in the prospect of an economic "soft landing."

On Wednesday, the Institute for Supply Management (ISM) released the May services PMI index, which rebounded sharply, ending the previous trend of lackluster economic indicators. This positive data boosted market confidence and eased previous concerns about a "hard landing."

Interestingly, U.S. stocks on Friday were not entirely dominated by the non-farm report; there was also a fervent speculative sentiment stirring up the market.

Starting at noon on Friday Eastern time, Keith Gill, known as the "retail lead" and online moniker "Roaring Kitty," conducted a 50-minute live YouTube video, in which he showcased his nearly $300 million position in GameStop, attracting over 600,000 viewers.Some analyses suggest that Gill's ability to attract an audience illustrates a core fact on Wall Street at present: investors' interest in and engagement with risky assets, such as meme stocks, continues to soar, with bullish sentiment spreading across various investment fields. Other evidence includes the 3% rise in Cathie Wood's Ark Funds this week, more capital flowing into junk bonds and cryptocurrencies, and Citigroup's cross-asset volatility index hovering near the lows of 2017.

J.P. Morgan Asset Management portfolio manager Priya Misra stated, "The current market focus indicates that people are not concerned about macroeconomics. We are currently in a 'soft landing' state, and it sounds like investors have a lot of confidence in this."

Indeed, rising yields have put pressure on U.S. stocks, but not as much as Gill's live broadcasts. His activities on social media have once again stimulated investors' interest in high-risk investments, fueling a speculative atmosphere. In the current economic situation, the market sentiment is being dominated by a few influential retail investors.

Furthermore, against the backdrop of U.S. stocks repeatedly hitting new highs this year, most investors in the market have fallen into a panic about missing out on opportunities to make money.

Nathan Thooft, head of global asset allocation at Manulife Asset Management, which manages $160 billion in assets, said, "We currently have no plans to reduce risk. We do believe that if investors exit or choose not to participate in stock market transactions, they will miss out on additional stock returns."

The bond market is more focused on inflation and remains robust throughout the week.

Ripley believes that U.S. Treasury traders seem to have reacted particularly to the wage data in the employment report.

The non-farm report shows that the average hourly earnings growth rate for May rose to 4.1% year-over-year, exceeding expectations, and the April data was revised up from 3.9% to 4%. The Federal Reserve hopes that the annual wage increase will slow down to 3% or lower, bringing the U.S. inflation rate back to the pre-pandemic low levels.

Ripley said that the wage data has truly triggered the market's concerns about inflation, "This means that the timing of the Federal Reserve's rate cuts has been further delayed."Federal funds futures indicated that after the release of the employment data, the last glimmer of hope for a 25 basis point rate cut by the Federal Reserve at the July meeting has vanished, and expectations for rate cuts later this year have also significantly cooled. The CME Group's FedWatch tool showed that the probability of a 25 basis point rate cut in November and December has dropped to around 50%.

The June interest rate decision is scheduled for next week, and it is highly likely that the Federal Reserve will continue to stand pat, but investors will closely monitor the Fed's policy statement, Powell's speech, and most importantly, the latest dot plot.

The latest dot plot released in March showed that the Federal Reserve generally expects three rate cuts of 25 basis points each by 2024.

It is also worth noting that despite a significant rise in yields on Friday, the trend for the week was downward: the 10-year U.S. Treasury yield fell by 7 basis points, and the 2-year U.S. Treasury yield was essentially flat compared to last week. Overall, the bond market remained robust for the week, and the yield attraction may not have created an absolute gap with stocks.