Stocks and bonds are out of balance. Here's what could come next.
Analysts at BMO and UBS predict that the yield on the 10-year Treasury will surpass the S&P 500 earnings yield, indicating a potential fall in stocks and a rise in bond prices.
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Posted 9/5/2023, 10:28:00 AM
marketwatch.com
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Treasury yields reach new decade highs in Asia as traders become concerned about the duration of elevated interest rates, causing a dampening effect on stocks, particularly in China, even as some markets attempt to rebound.
Bond selling has driven 10-year Treasury yields to 16-year highs, possibly due to the timing of the Bank of Japan's signal to allow higher yields and speculation on the upcoming Federal Reserve symposium, with implications for risk appetite and a focus on Fed Chair Jerome Powell's Jackson Hole speech.
Surging U.S. Treasury yields are causing concern among investors as they wonder how much it will impact the rally in stocks and speculative assets, with the S&P 500, technology sector, bitcoin, and high-growth names all experiencing losses; rising rates are making it more difficult for borrowers and increasing the appeal of risk-free Treasury yields.
Stocks are facing a "real" yield problem as investors become more focused on rising real yields, which could result in lower stock prices and a hit to the P/E multiple.
The S&P 500 has fallen nearly 5% in August, and opinions on whether stocks will rebound are divided among Wall Street firms and market commentators, with some, like Goldman Sachs and Fundstrat, remaining optimistic while others, including Michael Burry and David Rosenberg, are bearish.
Investors are turning to high-yield cash alternatives, such as savings accounts and bonds, which offer returns of over 5% and are outperforming the S&P 500, prompting some to reconsider their exposure to the stock market's volatility.
The recent sell-off in US bonds has led to a rise in the yield-to-duration ratio, indicating that yields would need to increase significantly to generate losses, providing a potential floor for the struggling market.
Wharton professor Jeremy Siegel predicts that the stock market will continue to rise into the end of the year, with the S&P 500 potentially surging 25% and gaining an additional 9% if the Federal Reserve acknowledges falling inflation and refrains from further interest rate hikes.
The S&P 500 could experience significant gains in the coming months following the end of the current rate hike cycle by the Federal Reserve, with historical data showing positive returns after previous cycles and strong economic indicators supporting this trend. Investors are advised to consider investing in an S&P 500 index fund or industry-leading stocks like Amazon.
U.S. Treasury yields rise as investors await jobs report for insight into the economy and Fed's monetary policy decisions.
The 10-year Treasury bond is a "screaming buy" for investors as the yield is likely to fall over the next year due to the Fed's success in curbing inflation, according to BMO Capital Markets head of US rates strategy Ian Lyngen.
Bank of America's technical strategist believes that despite historically poor September performance, the S&P 500's year-to-date rally positions it for further gains, with the potential for an 8% climb by the end of the year.
Treasury yields are on the move and investors should pay attention to where they might be headed next.
The yield on the 10-year Treasury note is predicted to decrease significantly for the remainder of this year and in 2024, as economists anticipate the Federal Reserve to loosen its monetary policy and inflation to fall.
The S&P 500 index has seen impressive gains this year, but one expert believes the rally is coming to an end, citing rising bond yields as the main threat to stock prices.
Economist Gary Shilling predicts that the S&P 500 will decline by around 40% during this market cycle, citing recession indicators such as the yield curve and The Conference Board's Leading Economic Index. He believes that a US recession may already be underway due to the Federal Reserve's focus on reducing inflation, and high valuations in the stock market increase the likelihood of a significant drop.
Bank of America predicts that the S&P 500 could surge over 25% within the next year based on a bullish indicator, with low long-term profit growth expectations among analysts signaling potential gains.
Higher interest rates have historically correlated with lower market returns, but new research from BMO Capital Markets suggests that the impact of higher rates on the S&P 500 is overblown, as returns tend to be slightly below average but with lower volatility; BMO recommends buying 28 stocks with low leverage and high free cash flow to benefit from this strategy.
Global equities slide and the 10-year Treasury yield remains near a 16-year high as rising concerns about the Federal Reserve's interest rate policy and other headwinds weigh on the US consumer and economy.
The Federal Reserve's continued message of higher interest rates is expected to impact Treasury yields and the U.S. dollar, with the 10-year Treasury yield predicted to experience a slight increase and the U.S. dollar expected to edge higher.
Treasury yields rise and stocks fall as traders anticipate longer-lasting higher rates to prevent inflation, while Brent oil briefly surpasses $95 a barrel; the Federal Reserve's decision on interest rates is eagerly awaited by investors.
U.S. Treasury yields dip slightly as investors await the Federal Reserve's interest rate decision and guidance, while the 10-year yield remains near 16-year highs.
The 10-year Treasury yield reaches its highest level since November 2007 as investors anticipate the Federal Reserve's rate announcement, despite expectations that the Fed will maintain its current rate target.