The last week of May marked a reversal in bond yields that many in the markets have been expecting since the beginning of the year. The rise of the 10-year U.S. Treasury note was welcomed by technology and homebuilder stocks, and investors followed the smart money and crowded into the top performers.
The smart money was on the move as investors sought out investments that would capitalize on the rise in bond yields. Technology stocks had led the market for much of 2021, and last week’s reversal in bond yields was another catalyst for these stocks to stay on their path and attract increased investor attention.
In addition, homebuilder stocks were also in focus as higher mortgage rates drove up demand for new homes. As bond yields increased, the cost of buying a house went up, making new homes more attractive to buyers. This, in turn, drove up demand for homebuilder stocks.
Aside from technology and homebuilder stocks, the rally in bond yields also bode well for cyclical stocks in the travel, consumer discretionary, and energy sectors. As investors become more confident in the economy and its outlook, they will likely flock to these sectors in order to capitalize on the increase in economic activity and spending.
Of course, the bond yield rally wasn’t solely responsible for the performance of these stocks during the last week. The positive performance in tech and homebuilder stocks was likely the result of an accumulation of positive news and events, with the increase in bond yields just giving the sector that extra boost.
It remains to be seen if the recent rally in bond yields will be sustained, and whether the performance of tech and homebuilder stocks will continue to be strong in the coming weeks. Nevertheless, it’s clear that the smart money followed the market momentum and chased the stocks performing well, and this will likely continue to be the strategy moving forward.