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For some time in 2023, bond market volatility caused major headaches for stock investors.
While the S&P 500 (^GSPC) fell for three straight months in the fall, the 10-year Treasury yield (^TNX) soared.
But Wall Street strategists believe the tide may be turning in this market dynamic. After three years of uncertainty, Rick Rieder, BlackRock’s global fixed income chief investment officer, recently told Yahoo Finance Live that after three years of uncertainty, the worst of fixed income volatility is likely over. I can now sleep,” he said.
“This past decade has been like a lost soul finding a home,” Rieder said.
Some Wall Street strategists are betting that rising bond yields won’t be a headwind for stocks in 2024, as investors become increasingly confident that inflation will decline and the Fed’s next move will be to cut interest rates. Some people see it disappearing.
This has been the case recently as well, with stock prices rising regardless of the direction of the decade.
In December, as investors priced in the possibility of a sooner-than-expected interest rate cut, stocks rose to near record highs, but yields fell.
but Yields rose as the S&P 500 hit several record highs in January. Jonathan Golub, equity strategist at UBS, said on Monday that since the rally began in late October, stocks have risen by the same amount on days when yields rose and on days when yields fell.
For Golub, this means fundamentals such as earnings, not interest rates, are driving stock prices.
One reason why the recent rise in the 10-year Treasury yield hasn’t been a headwind for stocks is the nature of the news that caused it. For example, Friday’s better-than-expected January jobs report sent stocks near a 10-year high by nearly 20 basis points during trading as investors scaled back bets on the Federal Reserve’s March interest rate cut. It skyrocketed.
But the report also shows that the US economy remains strong, which many investors argue is a good backdrop for future corporate profits. Then on Friday, the S&P 500 rose more than 1%, closing at a new all-time high.
“Economic growth is more important to price-to-earnings ratios than yield curve movements,” David Kostin, chief equity strategist at Goldman Sachs, said in a note to clients on January 26. “The highest rate of return is recorded during periods of strong economic growth.”
Additionally, yields are also likely to reflect investor sentiment about a strong economy, as concerns about whether the Fed will continue to raise rates fade.
“Growth expectations will become a more important driver of yields as investors become less concerned about potential Fed tightening, and the negative correlation between stock prices and yields will decline in 2024,” Kostin said. It will contribute to that.”
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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