Stocks don’t fear the rising Treasury yield. At least not this week.
US stock-index futures on Thursday pointed to strong gains ahead of the opening bell on Wall Street. S&P 500 futures gained 0.81 per cent, Nasdaq 100 futures advanced 0.76 per cent and Dow Jones Industrial Average futures rallied 1.2 per cent.
Concerns over rising bond yields were cited as one of the reasons for last week’s 5.2 per cent drop in the S&P 500, which briefly sent America’s benchmark stock gauge into correction territory.
Yields have continued climbing this week, with the 10-year yield rising as high as 2.944 per cent on Thursday, up sharply from 2.72 per cent at the end of last month. Yields move in the opposite direction to prices.
The most recent drive higher was fuelled by a stronger than expected January inflation report, released on Wednesday.
Markets appear to be less jittery this week, even as the 10-year yield has approached 3 per cent. The S&P 500 is up 3 per cent since last Friday, and narrowly higher again for the year to date as of Wednesday’s close.
Jodie Gunzberg, head of US equities at S&P Dow Jones Indices, points out that the reason behind rate increases is critical to its impact on equities.
“If there is accelerating growth and inflation, like now, rising interest rates can result in appreciating assets,” she said.
In fact, since 1971, the S&P 500 total-return index, which includes dividends, has rallied by a fifth on average in rising rate environments, according to Ms Gunzberg’s calculations.
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