The 2023 Stock-Market Rally Sputters in New World of Yield

livemint.com:

It seemed like nothing could stop the 2023 market rally. Then the third quarter arrived. Yields on longer-term government bonds soared, blunting the advance of a stock market powered by richly valued technology shares.

The S&P 500, which had been up nearly 20% for the year just two months ago, is hanging on to a 12% increase. Investors are heading into the final months of 2023 worried that the Federal Reserve will keep interest rates higher for longer than they expected just months ago, potentially eroding the case for risky assets like stocks and heightening the likelihood that a seemingly resilient economy runs into trouble. The third quarter is ending on a down note: The benchmark stock index had been essentially flat heading into the central bank’s meeting last week but turned lower after officials signaled they might hold rates near current levels through 2024.

A prolonged period of elevated rates could upend the investing strategies that prevailed during years of rock-bottom rates after the global financial crisis, when investors saw few options for returns outside the stock market. Now the central bank’s rate increases have seeded a world of yield, giving investors opportunities to earn meaningful returns with little potential downside. “Equities are competing with 5% returns on cash, which is basically no risk," said Saira Malik, chief investment officer at Nuveen.

“They used to say ‘TINA,’ right, ‘there is no alternative.’ There are alternatives now for equities." The S&P 500 is on track to drop 3.4% for the quarter. A retreat by technology stocks helped cement the decline, with shares of Apple and Microsoft, the biggest companies in the U.S. market, falling 12% and 7.9%, respectively.