- April 18, 2024
- Posted by: legaleseblogger
- Category: Related News
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Impact of Rising Bond Yields on Stock Drawdowns
Rising bond yields have been a key catalyst for stock drawdowns over the past year. However, it is essential to note that higher rates have not always been bad for stocks. In fact, historical data analysis indicates that stocks can perform well even in a rising rate environment.
In an analysis going back to 1990, BMO Capital Markets chief investment strategist Brian Belski found that the S&P 500 delivered an average annual return of 7.7% in months when the 10-year Treasury yield was less than 4%. This is significantly lower compared to an average annual return of 14.5% in months when the 10-year yield was 6% or higher.
Moreover, stocks have historically performed better when rates were rising rather than falling. The data suggests that the average annual rolling one-year return for the S&P 500 during a falling rate environment was 6.5%, while it significantly jumped to 13.9% in a rising rate regime.
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Current Market Trends and Future Outlook
Since the start of April, bond yields have experienced a significant surge, with the 10-year Treasury yield up roughly 40 basis points to approximately 4.58%. This surge in yields has coincided with a more than 4% decline in the S&P 500 during the same period.
Despite the recent market fluctuations, Belski remains optimistic about the performance of stocks in a higher interest rate environment. He believes that stocks traditionally do well in such conditions and expects a positive outcome by the year-end.
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Future Rate Normalization and Market Outlook
Belski anticipates a “return to normalization” in rates, with the 10-year Treasury yield reaching closer to its 75-year average of 5%. He emphasizes that if rates remain within the 4% to 5% range, coupled with strong economic indicators like employment and earnings growth, the market is poised to perform well.
How AI legalese decoder Can Help: AI legalese decoder can analyze historical interest rate data and market patterns to forecast the likely path of rates and their impact on stock markets. By providing comprehensive insights into rate normalization and market outlook, it can assist investors in navigating volatile market conditions with confidence.
Josh Schafer is a reporter for Yahoo Finance. Follow him on Twitter @_joshschafer.
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