{"id":13219,"date":"2023-08-20T19:15:36","date_gmt":"2023-08-20T19:15:36","guid":{"rendered":"https:\/\/isafespend.com\/investing\/stock-market-slides-as-treasury-yields-rise-what-to-watch-next\/"},"modified":"2023-08-20T19:15:38","modified_gmt":"2023-08-20T19:15:38","slug":"stock-market-slides-as-treasury-yields-rise-what-to-watch-next","status":"publish","type":"post","link":"https:\/\/isafespend.com\/?p=13219","title":{"rendered":"Stock Market Slides as Treasury Yields Rise. What to Watch Next."},"content":{"rendered":"
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Housing starts and other economic data are strong, which could prompt the Fed to raise interest rates higher or hold them at restrictive levels for longer.<\/h4>\n


\n Scott Olson\/Getty Images
\n <\/span>
\n <\/figcaption><\/figure>\n<\/p><\/div>\n

Everyone likes a good competition\u2014except when it\u2019s hammering the stock market.<\/p>\n

With yields rising, stocks have real competition from bonds in a way they haven\u2019t for a decade and a half. The yield on the 10-year U.S. Treasury note hit 4.25%, up 0.3 points since the start of August and near its highest since 2007. That\u2019s a nice payout, especially with stocks appearing pricey. It\u2019s a big reason the
\n Dow Jones Industrial Average
\n fell 2.2%, the
\n S&P 500
\n lost 2.1%, and the
\n Nasdaq Composite
\n dropped 2.6% this past week.<\/p>\n

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There are several forces behind the recent move higher in yields. Some are largely technical: U.S. Treasury issuance has been larger than normal this month, the Bank of Japan just allowed yields to drift higher, and the credit-ratings firm Fitch downgraded the U.S. sovereign rating on Aug. 1.<\/p>\n

Others are more fundamental, tied to ever-evolving expectations of Federal Reserve policy. In the past week, stronger-than-expected retail sales, housing starts, and industrial production data propped up the case for a soft landing for the U.S. economy\u2014the Atlanta Fed\u2019s GDPNow tool projects 5.8% gross-domestic-product growth during the third quarter. There\u2019s a downside to that strength. Stronger growth could fuel inflation, prompting the Fed to raise interest rates higher or hold them at restrictive levels for longer\u2014both pushing up bond yields.<\/p>\n

And it\u2019s not just nominal bond yields that are up lately. Real yields\u2014adjusted for inflation\u2014have been steadily climbing as rates rise and inflation decelerates. The yield on 10-year U.S. Treasury inflation-protected securities was negative until May of last year. It touched 2% on Friday, its highest level since 2009. That\u2019s an attractive-enough after-inflation yield for many investors, and it presents more competition for stocks, especially those with high valuations.<\/p>\n

\u201cCreditors deserve to make a living, too,\u201d says James Grant, editor of Grant\u2019s Interest Rate Observer. \u201cIt is terrific for savers, of course, and not so terrific for people who have positioned themselves in the expectation that the negative real yields of recent years would persist.\u201d<\/p>\n

Today\u2019s yields will look particularly attractive should signs of peaking inflation and slowing growth return, which would lower the odds of continued Fed tightening and push down both real and nominal yields. And bonds at today\u2019s levels stand to enjoy a decent capital gain should the situation worsen more significantly, prompting a recession scare, Fed cuts, and a flight to safety in fixed income.<\/p>\n

Stocks, though, could be caught in a lose-lose situation. Rising yields will hurt valuations, but a slowdown in the U.S. or elsewhere\u2014China\u2019s economy seems particularly concerning\u2014could also cause the S&P 500 to slide. A lot may also depend on how earnings from
\n Nvidia
\n (ticker: NVDA), which sparked the AI boom, turn out when it reports Wednesday. <\/p>\n

But those appear secondary to the speech Fed Chairman Jerome Powell is set to give at Jackson Hole this coming Friday. His words alone could determine whether yields keep rising\u2014and stocks keep falling. \u201cEquity markets will remain under pressure while the 10yr is increasing,\u201d writes Dennis DeBusschere, chief market strategist at 22V Research.<\/p>\n

Meanwhile, bond yields should continue to attract some real interest.<\/p>\n

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Write to <\/strong>Nicholas Jasinski at nicholas.jasinski@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Housing starts and other economic data are strong, which could prompt the Fed to raise interest rates higher or hold them at restrictive levels for longer. Scott Olson\/Getty Images Everyone likes a good competition\u2014except when it\u2019s hammering the stock market. With yields rising, stocks have real competition from bonds in a way they haven\u2019t for<\/p>\n","protected":false},"author":1,"featured_media":13220,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[49],"tags":[],"class_list":{"0":"post-13219","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-investing"},"yoast_head":"\nStock Market Slides as Treasury Yields Rise. 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