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Yields Correlation with the Stock Market

23 Jun,2021
Yields Correlation with the Stock Market

Treasury Yields have been under the spotlight since the pandemic, well especially because of the pandemic. Whereas investors flocked to government bonds for old-school stability, with better risk-free returns. Yields then kept climbing back and forth shaking up the equity market.  

Stimulus


This is where trillions of dollars were liquidized into the market as stimulus initiatives and the stock market was re-evaluated, anyways in context with the last Fed meeting indicating the 2-hike rate forecast for 2023, we saw yields climb creating a slight panic in the stock market. While yields jumped giving an elite push to the USD meanwhile stocks shed away.  

Inflation


With inflation on the radar, rising yields have been stagnant, despite central banks affirming that it’s in fact “transitionary”. So now that we have investors betting on economic recovery or to be exact, we are in the midst of it. And investor risk appetite renewing, in addition to more job openings and better retail sales figures, we have higher inflationary pressures ultimately having higher yields.

The stock market


Now to get to the stock market, we have higher yields altering stock market valuations at this point. Whereas we have growth stocks bolstered on the back of Jerome Powell’s testimony affirming that inflation is not enough to raise interest rates that quickly and that the central bank still has a labor market goal to achieve, therefore growth stocks have the advantage knowing that till 2022 there won’t be a rate hike And we have a futuristic opportunity on sectors like financials and energy where they would potentially gain of the rising prices.


 

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