In my view, US stocks have been able to rally with yields rising because the market has priced out the risk of a recession while pricing in a larger Fed put in light of Powell’s willingness to pull the trigger on a 50 basis point cut.
That’s a powerful combination but stocks have rallied 9% and election risks are on the horizon. Moreover, US 10-year yields have jumped, which is something that will weigh on real economic activity, particularly in rate-sensitive sectors like autos and real estate.
ZeroHedge highlights a Goldman Sachs note that looks at how far yields have to move to weigh on stock markets.
“Historically, a 2 SD move in US 10 yr yield, equivalent to around 60 bps today (3yr lookback), over a month is when equity market returns are below avg. Given we’ve moved 46bps MTD, this simple rule of thumb argues that a move towards 4.30% is where things would get tricky for stocks”
That leaves about a 10 basis point cushion, which I think is a tough hill to climb in the next week.
US 10 year yields daily
That’s a rule of thumb, as they say so take it with a grain of salt. At the moment, I’ve been impressed by the resilience in stock markets today. There are worries building but there certainly wasn’t a rush to the exits today when futures were poor.
I am starting to worry more about housing with 30-year US fixed rates up to 6.85% from a low of 6.11% on Sept 11. I think we need to get back down to those lows or there will be pockets of trouble in the US housing market by mid-2025.
