Nordea Markets: Fixed interest rates allow technology to return

Wall Street’s inflation fears over the past month have led to a hike in US 10-year government interest rates. It now appears to be flat, which means the technology has made a mini comeback. The question is how long such a return can last, Nordea Markets believes in its weekly report.

Although the rise in interest rates has now stabilized, Nordea believes they will continue to rise later this year. The background is the strong growth in employment in the United States, and the effective vaccination process to date. The Fed wants employment to return to the pre-corona level before its key rate hike, but Nordea notes that it often takes longer for that to happen — and in the meantime, the US government rate could last 10 years on the rise.

This rise in interest rates will weaken the technology sector, as many companies are valued on future earnings. So Nordea expects the value rotation and cyclical stocks to rise again.

Sees the probability of a decrease through the quarterly numbers

Starting next week, the major US banks will present quarterly numbers for the first quarter. Nordea believes that banks will be able to show a strong improvement, compared to the same quarter last year. But they don’t believe in any big surprises as we saw last year.

Nordea estimates revenue growth of about 8 percent from the first quarter, while nominal GDP grew 1 percent in the same period. So the Nordic financial group does not rule out that the market could surprise from the downside, and points out that the uncertainty is high – something that could calm the latest euphoria.

Although the market may surprise negatively, it does not change Nordea’s future prospects. Companies will be able to take advantage of the cost reductions they have achieved during the pandemic, at the same time that growth in the economy will be strong, according to the financial group, which continues to maintain its dominance in the financial sector.