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Treasury Yields and Stock Market Performance - October 10, 2018

The yield on the 10-year Treasury bond is approaching 3.25% (MarketWatch), the highest since May 2011 (St. Louis Federal Reserve).

The recent spike in Treasury yields has created modest volatility in the major market averages, though the Dow Jones Industrial Avg1 remains near its peak.

How do rising and falling Treasury yields impact stocks? A recent study that reviews monthly changes in the 10-year yield and the S&P 500 Index2 from April 1953–June 2013 sheds some light.

Monthly S&P 500 performance in rising and declining yield environments

No. of months Avg monthly S&P 500 return
10-Year Yield Down 347 1.38%
10-Year Yield up 358 0.63%
All 722 0.94%

Source: S&P Dow Jones Indices: Much Ado About Interest Rates. Data through June 2013. Charts are provided for illustrative purposes. Past performance is no guarantee of future results.

  • Historically, rising yields have hindered performance.

  • The study also revealed that sharp increases in yields were most negative for stocks. Moderate increases in yields didn’t detract from performance.

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Back in 1969 - October 8, 2018

Back in 1969, Richard Nixon had just become president, the Vietnam War was raging, Neil Armstrong had landed on the moon, and the unemployment rate ended the decade at 3.5%. Fast forward 49 years and the unemployment rate is back at levels last seen in 1969 – see Figure 1.

10 8 18 unemployment

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Trick or Treat - October 3, 2018

October has a spooky reputation.

  • The Crash of 1929 and the Crash of 1987 occurred in October.

  • The S&P 500 Index1 fell 17% in October 2008 (data provided by the St. Louis Federal Reserve).

But October’s frightful reputation appears to be confined to isolated events.

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This is a Pretty Good Moment for the Economy - October 1, 2018

The title is a comment that came from Fed Chief Jerome Powell. He made the remark at last week’s quarterly press conference, which followed the Fed’s decision to hike the fed funds rate by 0.25% to 2.00-2.25%. It’s the eighth quarter-point rate hike since the Fed began boosting the key rate in late 2015.

10 1 18 index

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Ready, Set, Hike - September 26, 2018

The Federal Reserve’s two-day meeting concludes on Wednesday. It’s widely expected central bankers will hike the fed funds rate 0.25 percentage points to 2.00-2.25%.

  • Most investors anticipate a December rate hike, or four this year.

  • At 2.00-2.25%, rates would remain near historically low levels.

As rates rise, the fed funds rate is approaching what’s called the “neutral rate.”

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