• Email Us: [email protected]
  • Contact Us: +1 718 874 1545
  • Skip to main content
  • Skip to primary sidebar

Medical Market Report

  • Home
  • All Reports
  • About Us
  • Contact Us

Bruised market eyes Treasury yields to gauge stocks’ path

October 1, 2021 by David Barret Leave a Comment

October 1, 2021

By Lewis Krauskopf

NEW YORK (Reuters) – Investors are focusing on Treasury yields as a key factor in determining how stocks will fare the rest of the year, after a month in which equities notched their steepest losses since the coronavirus pandemic began.

The S&P 500 index posted its biggest monthly drop since March 2020 in September, while pulling back as much as 5% below its all-time high for the first time this year.

Stocks wobbled as yields on U.S. Treasuries shot to a three-month high, exacerbating worries in a market already unsettled by a nasty fight over the U.S. debt ceiling, the fate of a massive infrastructure spending bill and the meltdown of heavily indebted Chinese property developer China Evergrande Group. The S&P 500 is still up 16% this year.

“Investors are looking for a catalyst … and the catalyst that they are currently focusing on is the direction of interest rates,” said Sam Stovall, chief investment strategist at CFRA.

Yields, which move inversely to bond prices, are rebounding from historically low levels and their recent climb is widely seen as a sign of economic strength.

Their rally follows the Federal Reserve’s hawkish tilt at its monetary policy meeting last week. The central bank said it may begin tapering its $120 billion-a-month government bond buying program as soon as November and potentially begin raising rates next year, earlier than some were expecting.

Yet yield increases, such as the 27 basis point move logged by the 10-year benchmark note after the Fed meeting, could dim the allure of stocks. The 10-year yield was last around 1.47%, paring back gains toward the end of the week.

Stocks and bonds could take cues in the coming week from developments in Washington, where lawmakers continue to debate an infrastructure spending package, as well as next Friday’s monthly U.S. jobs report.

Among the indicators investors are using to gauge stocks’ future trajectory is the spread between the yields on two-year and 10-year Treasuries. Some view this as a barometer of whether the economy is slowing or overheating.

A spread of between zero and 150 basis points is a “sweet spot” for stocks, which has been consistent with an 11% annual return for the S&P 500, based on historical data, according to Ed Clissold, chief U.S. strategist at Ned Davis Research. The S&P 500 has averaged a 9.1% gain annually since 1945, according to CFRA’s Stovall.

That spread has recently widened and stood at around 120 basis points on Friday. When the spread exceeds 150 basis points, “that is when stocks tend to struggle,” Clissold said, historically equating to an annual S&P 500 return of 6%.

“Too steep of a curve implies that inflation is getting out of control and the Fed may have to tighten quickly,” Clissold said in a report this week.

The speed at which yields rise is also important, as is the economic and monetary policy backdrop, analysts at Goldman Sachs said.

In a recent report, the bank contrasted the latest rise in yields with a spike of 50 basis points earlier this year.

While the earlier rise reflected an improving economic outlook, now “economic growth is decelerating, the (Fed) is expected to announce the start of tapering at its November meeting, and our economists have downgraded China’s economic growth forecasts,” the bank’s analysts wrote.

Higher yields pressure stock valuations by increasing the rate at which future cash flows are discounted, a typical way to value equities. Such pressure is especially acute for tech and other growth shares whose valuations rely more on future profits.

The S&P 500 technology index fell 2% against a 0.9% drop for the overall index since last week’s Fed meeting. Weakness in the tech sector, which makes up over 27% of the S&P 500’s weight, and other tech-related shares, could spell trouble for the broader index, even as rising yields benefit economically sensitive stocks such as banks.

Many investors still see stocks as more attractive than bonds despite the rise in yields. The equity risk premium, which compares the earnings yield on stocks to the yield on the 10-year Treasury bond, currently favors equities, according to Keith Lerner, co-chief investment officer at Truist Advisory Services.

When that premium historically has been at the level it reached at Wednesday’s close, the S&P 500 has beaten the one-year return for the 10-year Treasury note by an average of 10.2%, Lerner said.

“A rise in yields, to a point, is healthy for the equity market,” said Matt Peron, director of research at Janus Henderson Investors.

(Reporting by Lewis Krauskopf; additional reporting by Noel Randewich in San Francisco; editing by Ira Iosebashvili and Richard Chang)

Source Link Bruised market eyes Treasury yields to gauge stocks’ path

David Barret
David Barret

Related posts:

  1. Biden says he is sure China will try to work out arrangement with Taliban
  2. Indian fintech Slice launches $27 credit limit cards to tap 200 million users
  3. ESPN to launch ‘NBA Today’ on Oct. 18
  4. Massive uncut diamond unveiled in New York

Filed Under: News

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

  • An “Unknown Biogeographic Barrier” Stops Deep-Sea Jellyfish Crossing The Atlantic
  • Some Giant Predatory Dinosaurs Had Barks (Or At Least Slashes) Worse Than Their Bite
  • World-First Gene Therapy Improves Vision For Man With Rare, Previously Untreatable Form Of Blindness
  • Exceptional 183-Million-Year-Old Fossil With Soft Tissues Intact Is New Species Of Giant Marine Reptile
  • White Raven: This Normally Black Bird Can Be Surprisingly Pale
  • Solar Systems 100 Times Smaller Than Ours Are Possible – Thanks To Rogue Planets
  • North Sea “Sinkites” Appear To Defy Rules Of Geology On Never-Before-Seen Scale
  • The Iberian Ribbed Newt Might Just Have The World’s Most Metal Defense Mechanism
  • There’s Only One Black Moon In 2025 And It’s Happening This Month
  • For First Time In Decades, Winter-Run Chinook Salmon Spotted In Upstream Californian River
  • JWST Shines New Light On 2500 Sources In Iconic Hubble Ultra Deep Field Image
  • Humans And Neanderthals Hooked Up Three Times. Here’s Where It Happened
  • What Happened To Percy Fawcett? The Explorer Who Went In Search “The Lost City Of Z”
  • COVID-19 And Flu Could “Reignite” Dormant Cancer Cells And Bring On New Tumors
  • Do Hair And Nails Really Grow Faster In Summer?
  • Wondrous And Worrying Sights: What Explorers Discovered At The Bottom Of The Great Blue Hole
  • What’s The Biggest Volcano In The World? It Depends How You’re Measuring
  • “Every Species On The Planet Self-Medicates In Some Way”: How Wild Animals Use Medicine
  • Deepest Complex Ecosystem Ever Discovered 10 Kilometers Below The Sea, 892-Kilometer “Megaflash” Lightning Sets New World Record, And Much More This Week
  • The Life And Death Of David Vetter, The Boy Who Lived His Whole Life In A Bubble
  • Business
  • Health
  • News
  • Science
  • Technology
  • +1 718 874 1545
  • +91 78878 22626
  • [email protected]
Office Address
Prudour Pvt. Ltd. 420 Lexington Avenue Suite 300 New York City, NY 10170.

Powered by Prudour Network

Copyrights © 2025 · Medical Market Report. All Rights Reserved.

Go to mobile version