The bull market heading into 2025 faces a threat that has been familiar for years: rising interest rates. History shows that when 10-year Treasury yields rise to current levels, stock returns begin to turn negative. The broader S&P 500 closed in the red in December after a stellar year for stocks, in part because of pressure from surging yields after the Federal Reserve signaled earlier this month it might slow the pace of interest rate cuts. What is particularly unusual is that while the Fed is in a rate-cutting cycle, interest rates continue to rise, somewhat contrary to investor expectations. This month alone, the benchmark 10-year U.S. Treasury bond yield has surged nearly 10% and is currently around 4.573%. Some attribute the measure to concerns that inflation could flare up again, or to growing confidence in the economy’s potential. US10Y YTD mountain US10Y YTD Chart Since stocks and bonds have traditionally been negatively correlated, when stock returns decline, bond returns typically increase. Since yield lows in 2020, stocks have gained 117% in 1,754 days, according to data from Evercore ISI. However, the firm said that during the 89 days when the 10-year yield rose above 4.5%, stocks fell 2.1%, and during the 20 days when the 10-year yield rose above 4.75%, stocks fell 3.7%. “As the unique era of long-term bond market gains and long-term stock market gains progresses into its fifth year of divergence, we are reminded that at times rising long-term yields can exert medium-term pressure on equities, although rising long-term yields can Bringing medium-term pressure. If history is any guide, with 10-year Treasury yields consistently trading above the 4.5% mark over the past few weeks, stocks could be in a precarious position heading into the new year, Evercore ISI added. Dow: “As 2025 begins, rising long-term bond yields pose the biggest challenge to the bull market. “While there are many reasons to expect yields to slow in the coming days (record shorts, potential for geopolitical ‘trades’ in oil-sensitive hotspots, DOGE), there is also considerable upward pressure on yields to move higher, and bond markets and bond markets are rising.
The 10-year Treasury yield when stock returns disappear | Real Time Headlines
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