Stock investors see green light in falling Treasury yields
By David Randall
NEW YORK (Reuters) — Hopes that a rout in Treasuries has run its course are tempting some investors back into the U.S. stock market after a months-long selloff.
The relationship between stocks and bonds has been a tight one in recent months, with equities falling as Treasury yields climbed to 16-year highs. Higher yields offer investment competition to stocks while also raising the cost of capital for companies and households.
Over much of the last week, however, that dynamic has reversed, following news of smaller than expected U.S. government borrowing and signs that the Federal Reserve is nearing the end of its rate hiking cycle.
Yields on the benchmark 10-year US Treasury, which move inversely to bond prices, are down about 35 basis points from 16-year highs hit in October. Meanwhile, the S&P 500 has surged nearly 6% from its October lows. The index is off 5% from its July peak, though still up nearly 14% year-to-date.
«The stability in rates is helping other asset classes find a footing,» said Jason Draho, head of asset allocation Americas as UBS Global Wealth Management. «If equities move higher you may find investors starting to feel as if they need to chase performance through the end of the year.»
Draho expects the S&P 500 to trade between 4,200 and 4,600 until investors determine whether the economy will be able to avoid a recession. The index was recently around 4,365.
Other factors may also be working in stocks’ favor. Exposure to equities among active money managers stands near its lowest level since October 2022, according to an index compiled by the National Association of Active Investment Managers — a compelling sign for contrarian investors who seek to buy when pessimism rises.
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