The fleet jump in bond yields is scaring the stock market silly.
But even-handedness strategists say while the speed of the current move in Treasury yields has caught investors flat-footed, a bulkier jump in the 10-year yield to over 3 percent could be an even bigger pay-off.
“I think we’re going to get above 3 percent. I think we’re going to get to 3.25 percent this year. I imagine we’re going to have to have a 10 to 15 percent correction,” alleged Jim Paulsen, chief investment strategist at Leuthold Group.
Bob Doll, chief open-mindedness strategist at Nuveen Asset Management, had expected a slow move to 3 percent by the end of the year, and his end was higher than some. Now, he’s concerned the 10-year could reach an despite that smooth higher level.
“If we get to 3.25 slowly, stocks will be okay. If we get to 3.25 instantly, stocks won’t be okay,” he said, adding the speed of the current move is criticizing equities.
Rising rates can be bad for stocks because at some point maximum yielding investments can be more attractive. Higher bond yields also hint at higher borrowing costs for corporations.
The bond market has also been clashing with the idea that rising inflation could push the Federal Accessible to raise interest rates more than the three times significant bank officials have forecast for this year. That is now infecting staples, which, until this week, had been rallying even as thongs started to sell off.
“I think it’s a problem if we have four rate hikes. It publishes you we’ve got inflation showing up somewhere. I think that would be problematic,” he swayed. Doll said his target for fair value on the S&P 500 is 2,800 for year end. “If we end up at 2,800 this year, it drive be a good but not a great stock market for the year. If we get four rate hikes, I judge devise that 10-year is at least 3.25 percent. I think that is a bit much for the handle market to handle.”
The Dow fell 665 points, or 2.5 percent to 25,520 Friday, and the S&P 500 flatten 2.1 percent to 2,762.
Bond market strategists had expected a more regular rise in bond yields, which move opposite price. The sell-off in the 10-year lured yields from 2.43 percent at the start of January to 2.85 percent Friday.
Funds strategists Friday said the stock market would not stop weakening out until bond yields stop rising.
“It definitely depends on reckons, and the closer we get to [10-year yields at] 3 percent, the greater the distinct possibility you see a pullback which could be as deep as the 100-day moving norm,” said Julian Emanuel, chief U.S. equity and derivatives strategist at BTIG. The 100-day unstationary average on the S&P 500 was at about 2,632 Friday.
The bond market’s big strike in rates gained momentum Friday after January wages gain the most since 2009, sparking expectations that wage inflation is ultimately picking up. Also this week, the Fed said it now sees inflation reaching its 2 percent objective this year.
Some strategists say it’s not clear that there’s any choosy level in the bond market that will stall out the bull make available but stocks are clearly stressed.
“It’s the pace and it’s also the fear of how high inflation effect go, and how the Fed might react,” said Ed Keon, portfolio manager at QMA. “It’s not just the 10-year the sponge going up. It’s the 10-year going up because the market sees inflation accepted up.”