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Equities
Have rising yields historically hurt stocks, and why is 5% such a critical threshold?
The chart below decomposes S&P 500 excess returns relative to cash since 1970 based on whether bond yields were rising or falling. For the first half of the sample, rising yields were indeed associated with weaker equity returns, but the relationship largely broke down in the second half of the sample.
The shift roughly coincided with the 10-year Treasury yield falling below 5%, a level it has rarely exceeded since. That history may help explain why the 5% threshold looms so large for equity investors.
But rather than a particular threshold, is there a more fundamental relationship that holds across rate levels? The next chart focuses exclusively on periods when yields were rising and further divides them based on whether growth was strengthening or weakening. The distinction is clear: rising yields were a meaningful headwind for stocks when accompanied by weakening growth.
United States
Goldman Sachs sees little economic justification for a rate hike, arguing that the entire overshoot of the 2% inflation target reflects fading one-off factors.
Canada
Canada’s business fixed investment has trailed that of the US and euro area over the past decade, underscoring why Prime Minister Mark Carney is courting global investors at this week’s Canada Investment Summit as the government seeks to catalyze C$1 trillion in investment over five years.
Euro Area
Pantheon Macro’s model points to downside risk to Germany’s Q3 growth.
Japan
Japan’s centenarian population surged past 100,000 for the first time, reaching a record 107,677—nearly 88% of them women.
India
India’s equity forward P/E is even higher than that of the US.
Rates
After briefly topping 5% intraday yesterday, the 10-year yield has risen above 5% again in the overnight session and is currently trading at the highest level since July 2007.
Commodities
US copper inventories have surged to 15 times their 2020–24 average and now account for a record 70% of global warehouse stocks, while inventories in London and Shanghai have been drawn down.
What makes sovereign debt particularly dangerous at the systemic level is the structural dynamic governments use to sustain it.