Stock market rally set to weather higher bond yields
stock market rally is strong enough to withstand another leg higher for bond yields, according to the latest Markets Live Pulse survey.
With the soft-landing narrative for the world's biggest economy gaining traction, the majority of 331 respondents expect losses for S&P 500 Index to be contained to less than 10% should yields on the 10-year Treasury resume their climb and hit 4.5%. That would allow the US equities benchmark to hold on to some of its 18% year-to-date gains.
«If we get higher interest rates and bond yields, it will probably be because the macro economy surprises on the upside,» said Christopher Hiorns, portfolio manager at EdenTree Investment Management Ltd.
«So equities, providing protection against inflation, may not be such a bad place compared to bonds.»
Yields on the 10-year note reached a 16-year high of 4.36% in August as a persistently resilient US economy has investors betting interest rates will remain elevated. The jump in yields made August the worst month for the S&P 500 since February, though the stocks gauge remains at considerably higher levels than during prior periods when yields were as elevated as they are now.
With the Federal Reserve prepared to keep borrowing costs elevated until inflation is on a convincing path toward the US central bank's 2% target, there's more room for yields to rise even further.
Though strategists expect any march higher to be capped near 4.5%. Such a yield on the 10-year would drop the S&P 500 Index year-end target of HSBC Holdings Plc's US equity strategy team to 4,500 from 4,600 — leaving the stock gauge with a 17% gain in 2023.
Some strategists see yields falling.
