When Bond Yields Dropped, the Everything Rally Kicked Off
Investors spent most of 2023 fretting about inflation and interest rates. Now they are snapping up everything from stocks and bonds to crypto and even gold. The simultaneous surge across assets has sparked debate about whether the “everything rally" marks the arrival of a lasting bull market—or just a fleeting sugar high at the end of the Federal Reserve’s tightening cycle.
At the start of the year, interest rates were rising and Wall Street was bracing for a recession. Major stock indexes rallied, driven largely by the “Magnificent Seven" group of technology stocks, but most other sectors languished. Now bond yields are plunging, and investors sense the Fed’s fight against inflation is winding down.
The drop in yields has led to a broad rally: Some of the market’s most beaten-down sectors, including property stocks and regional banks, are leading the way. “The economy is slowing, but it’s not cracking," said Jason Draho, head of asset allocation Americas at UBS Global Wealth Management. “All of which means the concern about the Fed hiking any more, that’s off the table." The S&P 500 has advanced 12% from its Oct.
27 low to reach its highest level of 2023 and extend its year-to-date gains to 20%. The blue-chip Dow Jones Industrial Average, which had lagged behind for much of the year, is less than 2% from its January 2022 record. And the Nasdaq Composite, which fell farther than the other indexes on the way down, has paced its peers with a 38% gain in 2023.
In the bond market, the yield on the benchmark 10-year U.S. Treasury note has fallen to 4.244% from 5.021% on Oct. 23 as prices have risen.
U.S. government bonds returned 3.44% in November, marking their third-best monthly performance since 1989, according to UBS. The
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