With just four days left in the quarter, the stock market continues to bounce off its mid-March lows. The futures are trading slightly higher this morning despite the fact that interest rates are moving higher. (The yield on the 10yr note actually is not moving much, but the 2yr and 5yr yields are indeed jumping higher.) We suppose that the fact that the stock market is still rising in the face of higher yields should not be overly surprising…given that this has been going of for two weeks now.
However, this is not something that can likely go on for very long. When yields rise in a meaningful way, it pretty much always has a negative impact on the stock market eventually. Heck, in 1987, the yield on the 10yr note rose 46% before it had a negative impact on the stock market…and this time around, that yield has risen 120%! Okay, okay…we readily admit that a rise above 10% (like we saw in ’87) is a MUCH bigger deal than a rise to 2.5% we have seen over the past 8 months...but we just wanted to highlight that the move since August has been an extremely significant one. Therefore, it’s something that should create headwinds for the stock market before too long……NO, we are NOT calling for another 1987-style crash. We’re just saying that those who think the stock market has already priced in such a large rise in yields…when the S&P 500 is trading at more than 20x forward earnings…are not looking at history correctly.
The market’s recent reaction (actually non-reaction) to the developments in Ukraine over the past few weeks is perplexing. Sure, the fact that Russia continues to struggle with their goal to taking control of Ukraine is good news…especially when we’re being generous when we ...
