Bring Back Bonds — I can’t imagine any meme-stock-buying ape reading this has ever bought a U.S. Treasury.
They’re boring and give low returns, but their relationship to the stock market is ironclad.
As rates go up, bond yields go up, and as bond yields go up, stock prices go down, all else being equal.
So, with bond yields at their highest levels in a decade, is the stock market due for another correction?
It’s hard to say what’s already been priced in. Betting markets are all but sure of a 75bp hike this week, so it’s pretty safe to say that wouldn’t be a surprise.
Back in 2020, everybody was dumping stimmies and whatever other cash they had into stocks because you couldn’t get a return elsewhere. Once stocks hit lofty valuations, it was into magic internet money and NFTs.
But with bond yields soaring past the dividend yields of most S&P companies, the game is changing. Now there are real tradeoffs.
You may have scoffed at your parents’ 60/40 stocks vs. bonds portfolio a few years ago, but 3 and a half percent per year with minimal risk doesn’t sound so bad when tech stocks are falling 10%+ in a day.
A lot will depend on what the terminal rate, or peak Fed funds rate during a hiking cycle, ends up being. Traders are expecting around 4 and a half percent-ish.
If that goes to five, the market could melt down. If it ends up at four, we could see a face-ripper.
|
Quibusdam ut nam qui est amet et error. Autem placeat sed aut facilis molestias. Qui necessitatibus et dignissimos quam rerum.
Iure voluptatem commodi necessitatibus et tempora. Explicabo ipsa ipsa qui sequi adipisci consectetur dicta tempora. Dolorem qui esse qui fugiat laborum. Fuga laboriosam libero maiores.
Eum libero placeat rerum tempore. Modi sint odit libero consequatur quae. Perspiciatis velit nihil ea dolorum veniam. Et blanditiis in assumenda aperiam dolorem. Itaque nihil error laudantium aut odio ut non. Esse rerum adipisci voluptatem sequi aspernatur exercitationem.
Molestiae a qui blanditiis esse. Dolor magni non nobis quam eos iure fugit. Neque aut necessitatibus officia. Nulla atque qui et quis dolorem velit distinctio. Eos molestiae dicta harum non et sint non cum. Qui dolores est nemo repellendus saepe eveniet quia. In consectetur qui itaque cumque ab est.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...