Rising U.S. bond yields pose new threat to sky-high stocks
The U.S. stock market has so far digested a surge in Treasury yields, but some investors are worried that a continued ascent could prove more problematic.Optimism over monetary and fiscal support from policymakers, robust corporate earnings and the prospect that coronavirus vaccines could hasten a return to normality in the United States and other countries have bolstered risk sentiment.
The yield on the benchmark 10-year Treasury note, which rises when bond prices fall, climbed to a one year high of 1.36% this week, fueled by expectations that progress in the countrywide vaccination program and further fiscal stimulus would further spur economic growth.
So far, stocks have responded with little more than a wobble. But some investors worry that a continued rise in yields on Treasuries -- which are backed by the U.S. government -- could dim the allure of comparatively riskier investments such as equities and weigh on the S&P 500 that has risen about 75% since last March.At 11:53 a.m. ET the Dow Jones Industrial Average rose 481.33 points, or 1.59%, to 30,872.93, the S&P 500 gained 41.22 points, or 1.11%, to 3,768.08, and the Nasdaq Composite gained 37.89 points, or 0.29%, to 12,856.85.
The small-cap Russell 2000 index jumped 2.5% to a record high.
Hopes of a vaccine-powered economic recovery in 2021 pushed Wall Street’s main indexes to record highs in late-December, with sectors that had previously lagged, including banks, industrials and energy, fuelling the rally.
Invesco Solar ETF gained about 10.6% on expectations that clean energy companies will benefit under a Democrat-controlled Congress, while bets on decriminalizing marijuana at the federal level lifted ETFMG Alternative Harvest ETF up 9.3%.
AmerisourceBergen Corp gained 7.3% after the U.S. drug wholesaler said it would buy Walgreens Boots Alliance’s drug distribution business for $6.5 billion to expand in Europe. Dow component Walgreens rose 4%.
Advancing issues outnumbered declining ones on the NYSE by a 1.35-to-1 ratio; on Nasdaq, a 1.22-to-1 ratio favored advancers.
The S&P 500 posted 52 new 52-week highs and no new lows; the Nasdaq Composite recorded 261 new highs and 17 new lows.
Still, he isn’t pulling back on his equity exposure for now because of the recent rise in yields, convinced a strengthening economy will continue buoying stocks, particularly those that should shine in a recovery such as financials and other value shares.