- Investor fears increase on pressure from rising yields forcing Fed to hike earlier than promised
- Dollar rebound to continue?
- Bitcoin hits new record on thinner weekend trade
Without doubt, yields have been the most recent catalyst for stocks—but whether headwind, tailwind or just simply whirlwind depends entirely on timing. Most equities rose along with yields on Friday, but investors have to be wondering how long this can continue.
After a breathtaking Treasury selloff on the final day of last week's trade pushed yields on the 10-year benchmark above 1.62% for the first time since Feb. 12, the S&P 500 pressed higher, finishing the week at a fresh record. The Dow Jones Industrial Average also hit a new high on Friday, capping off its best week since November.
The move on Friday wiped out the plunge in yields triggered a year ago by the coronavirus pandemic. Investors are now selling off current Treasury issues since they expect the Fed may have to raise rates as early as 2022. They anticipate the US central bank will be foreced to break its promise, repeated relentlessly, that rates will not be hiked until the end of 2023.
Meanwhile, shares that have gained the most in the last year, when the economy was pressured by the worst global health crisis in a century, were mostly tech sector equities listed on the NASDAQ. These stock are now considered overvalued and are being dumped by investors as yields begin to rise.
The chart below shows the disparity between the major US benchmarks and how they've fared relative to rates.
Yields vs Equities Daily