NEW YORK, Feb. 18 (Reuters) – As Treasury 10-year benchmark yields hit record highs in a year, investors are measuring how high bond yields can rise before threatening stock collection that saw the S&P 500 gain 76% from its March 2020 nadir.
Bond yields came down to record lows after the Federal Reserve cut rates to near zero in the early days of the coronavirus pandemic, driving money into stocks as investors preached TINA, an acronym for “There is no other choice.”
With the 10-year yield moving around 1.3%, that calculus may change for some investors, although there is little consensus on where that tense point could be.
A rapid jump in output is “something that is certainly a major threat,” said Padhraic Garvey, head of research, America at ING.
“What we don’t want to see in the short term (the 10-year yield) is hitting 1.40%, 1.50% and still looking up,” he said, noting that it could making allowances look as attractive as Safe Finance. .
Yields and stocks have soared over the past year, with the hope that fiscal and monetary stimulus coupled with a nationwide vaccination program will drag the U.S. economy out of its pandemic downturn.
But stocks could start losing their money if the 10-year yield hits 2%, analysts at JPMorgan said. They expect, however, that the 10-year will end the year at 1.45%.
“We believe that bond yields are likely to move higher from here, and that the move should be well absorbed by the equity market,” the bank’s analysts wrote in a note. earlier in the week.
Citigroup raised its 10-year high at 1.7%, while Nomura said a 1.5% yield could correct as much as 8% in stocks.
Higher yields could be a particular concern if they start to hit the big tech and communications stocks that have powered higher markets for much of the past year. Tech and other growth stocks with longer cash flows are more aware of rising yields as these flows are discounted at higher rates.
The top five companies in the S&P 500 by market value – Apple, Microsoft, Amazon, Alphabet and Facebook – make up about 22% of the index weight of the tokens.
However, the equity risk price, which compares earnings yield on a stock to the yield on the 10-year Finance bond, currently favors rations, according to Keith Lerner, chief market strategist at Truist Counseling Services.
When the core price of equity risk has been at its current level on Tuesday, the S&P 500 has surpassed the one-year yield for the 10-year Treasury note by an average of 3.5%, which according to Lerner.
“If the recovery (earnings) is as strong as expected, that would support the case for stocks,” Lerner said. (Reporting by Kate Duguid and Lewis Krauskopf; Further report by Karen Brettell; Editing by Ira Iosebashvili and Richard Pullin)