Treasury yields are surging… the U.S., 10-year treasury – a rate which every financial asset is tied to – has ripped back above 4.60%. Credit card rates, home loans, auto loans… you name it… have all increased. The last time UY.S. 10-year yields traded above 4.60% – the S&P 500 was ~20% lower. From mine, the divergence is a head-scratcher… however, what I can say is risk assets have a tougher time advancing when yields push beyond this zone. The question is – is now a good time to increase bond exposure? I think the answer is yes.. and here’s why
S&P 500 +10.1% for Q1 – Can it Continue?
If you asked me at the end of December whether I thought the S&P 500 would be up ~10% at the end of the first quarter this year – I would have said “unlikely”. And yet here we are. With the promise of (coming) interest rate cuts and continued strong economic growth (implying growth in earnings) – US equities have arguably exceeded most analysts full year targets. For we have already exceeded all but 1 of 18 full year S&P500 forecasts “experts” made at the beginning of the year.
Will Powell Heed Volcker’s Wisdom?
Next week Fed Chair Jay Powell will deliver the FOMC’s March statement on monetary policy. Interest rates are not expected to change – however his sentiment might. When we last heard from Powell – he was dovish – igniting a rally in risk assets. However, with inflation heating up and a tight job market – Powell may perform another pivot. Markets expect three rate cuts this year – those expectations might be dialed back to just two.
Something Doesn’t Add Up…
It’s Nvidia’s world and we’re living in it (if you believe the stock market). The S&P 500 (and Nvidia) recorded all new highs post the AI chip maker’s earnings. Be careful paying too much. The rapid rise in Nvidia’s market cap has only seen the market narrow further. And from mine, that makes it more subject to both volatility and risk. Deutsche Bank’s Jim Reid dimensioned the risk another way. He shows how the Top 10% of stocks in the S&P 500 constitute ~75% of the total capitalization. We have not seen that since 1929! The only other time we saw something similar was the dot.com bubble…
For a full list of posts from 2017…