Bond yields' reaction to latest economic data is ‘odd’: Strategist

Matt Maley, Managing Director and Equity Strategist at Miller Tabak, joins Yahoo Finance’s Kristin Myers to discuss market outlook and the latest economic data.

Video transcript

KRISTIN MYERS: I want to bring in Matt Maley now, Managing Director and Equity Strategist at Miller Tabak. Matt, as Emily was just highlighting, a lot of strong economic data and, of course, we've chatted about the economic recovery quite a bit on this program.

Wondering if, as you're seeing it, especially with the data coming in so strong right now, if we can firmly say that this pandemic is really in our rearview, we're moving away from it. And I don't know if we would say clear skies out ahead in front of us, but can we no longer have to worry about that pandemic really continuing to weigh on this economic recovery right now.

MATT MALEY: Well, I think we do have to be careful about making that big assumption that-- that assumption that it will just take off. But the-- that the economy will continue to take off. Because we still have these issues with Brazil, where they're really in a health care crisis. We have the situation where France has now over 100,000 deaths. We're seeing new lockdowns or extended lockdowns in other parts of the world. So we don't want to get too, I guess, as I say, too complacent.

I mean, one of the things that we're seeing today with the way the market's reacting, is that, yes, we're getting this great economic data, but in the last couple of months every time we've had this great economic data, bond yields have shot up. This hasn't happened this time today. It's kind of odd the way it's reacting. Bond yields have actually fallen pretty significantly today.

So that seems to be giving people the feeling that, hey, we know that the Fed is going to keep the short-term interest rates low, but we have been concerned about longer-term interest rates spiking higher. The fact that they're not spiking higher off this news is giving people a lot more, feel a lot more comfortable about the whole big picture situation. So I think it's more of an interest rate situation than that of the coronavirus.

KRISTIN MYERS: I'm really glad you mentioned that. We have the 10-year yield showing right now on the screen down about 5 and 3/4 of a percentage point. So let's ask that. Where do you see interest rates going in the short and even longer term? Where do you see inflation? We had a lot of inflation concerns out recently after the CPI came out.

MATT MALEY: Yeah, I'm glad you asked me how do I look at short term and long term, because near term, I do think these rates will continue, these long-term rates will continue to come in a little bit. And one of the reasons is, back in the middle of March we saw the bond market on a technical basis, the TLT, which is the bond ETF, of course, that measures price. That was the most oversold it had ever been, most oversold.

So bond prices-- again the TLT only goes back to 2002, but then you look at bond yields and you look at the Relative Strength Index chart, the weekly relative strength-- RSI chart is what I'm referring to, was the most overbought it had been. In other words, interest rates had gone as high as they had been on a short-term basis since 1994. So they really had nowhere to go but to come-- interest rates had to come back down. And it takes a while for that technical situation to be worked off. So I think rates will come back down a little bit.

But on a longer-term basis I think they will bounce back and before too long. In the next couple of weeks we'll probably see a bottom in here. Because, like you say, inflation is a concern. I think inflation is-- at least elevated inflation is here to stay. And therefore, we'll go back up to see those-- at least see those highs and maybe even push towards 2%.

So it's a kind of a two-sided situation. And that's going to be very important for the groups you look at. Because the groups that had been doing very well, like the banks, are suddenly not doing so well because rates have come back down. And just the opposite with technology stocks. They had been kind of lagging. Now they're outperforming. Those two situations could revert back to what they were doing before. So we have a lot of things going on in the next couple of weeks that I think are going to be very important.

KRISTIN MYERS: So looking at that, right now I'm seeing tech, one of the leading sectors, up over 1-1/2%. As you were mentioning, financials right now in the red, down about half of a percentage point. Just even looking out at the rest of 2021, where are you standing on that growth versus value debate? I know a lot of folks have talked about tech in 2021, if it's going to outperform like we had seen last year. Most folks saying no. How then should investors really be positioning themselves for the second half of this year?

MATT MALEY: Yeah, I think what's happening right now is a head fake. In other words, with this outperformance of tech, this is a resurgent of outperformance of tech and the underperformance of value. I think this is going to provide a great opportunity for people who maybe missed the value trade to get back into it over the next several weeks. This is not something will happen just over a day or two.

And especially as tech continues to rally a little bit, people-- because tech has done so well for so long, people will want to jump on to that and maybe rotate out of value. That's going to, I think, present a great opportunity to buy some of these value plays, like the bank stocks, which are still cheap compared to where they-- even though they've had this unbelievable rally, they're still cheap on a longer-term basis.

So I'm thinking as we move through the first half of the second quarter that's going to be a great time to be going back into those value names. Because I think the second half of the year-- the second half of the year is going to be-- again, rotate right back into what we saw in the first four months of this year and value's really going to best play.

KRISTIN MYERS: Matt, I do have to ask you, of course, about Coinbase. I'm looking at it right now, 334. So off of that open price of 381 yesterday. It had been a bit of a wild ride. We saw it spike up to 430 very, very quickly before sinking off of that high. What do you make of that IPO? And where do you see Bitcoin, other cryptocurrencies more generally going forward this year?

MATT MALEY: Geez, I'm not familiar. What are Bitcoin? What's Bitcoin? What are cryptocurrencies? I really don't know what you're talking-- No, but this is-- it's kind of interesting. Because the-- what's happened with Coinbase here, the fact that it's pulled back, that's not a big concern. It's still trading well above its IPO price, or I guess that's what you officially call it because it's a direct listing, but that $250 price, it's still well above it. And that's fine.

So the thing is, of course, is that we see huge volatility in this-- in Bitcoin and all cryptocurrencies for every year for the last 10 years. [AUDIO OUT] That's not going-- so that's not going to last very long. So, so I'm sorry, we are going to see more of that before we-- as we go through the situation. I'm sorry, I had something in my ear here.

But just going back to the point, is what I'm really looking for right now in Bitcoin on a short-term basis and will be very important for Coinbase, is going to be how Bitcoin ends this week. It made a nice higher high this week, which we hadn't seen in a while. Bitcoin hadn't actually done a little bit for a couple-- about six weeks or so.

And if it can make that nice higher high, well above that 61,000 high that we saw back in March, on a weekly basis, that, I think, is going to give it more upside momentum, give the people the kind of-- the momentum players the kind of confidence to get back in, to shoot this thing to 70,000 to 75,000 on a relatively short-term basis.

And, of course, that's going to help Coinbase. Because that'll help the activity pick back up. Because Coinbase is not a cryptocurrency. It's basically an exchange to trade cryptocurrency. So that's what I'm really looking for now. If we can get up and close this week at about 64,000-65,000, that's going to give a lot of those momentum players a lot more confidence to get back into the game.

KRISTIN MYERS: All right, we'll definitely have to keep an eye on some of those levels. Matt Maley, Managing Director and Equity Strategist at Miller Tabak. Thank you so much for joining us.