Why Higher Yields Don’t Mean Stocks Are Dead…Yet
If you do not believe traders are hooked on the easy money provided by the Federal Reserve, then consider what happened last Thursday. The yield on the 10-year Treasury edged higher by only 11 basis points to an intraday high of 2.82%, but it was clearly enough to rock the stock market. Now, can you imagine what would happen if yields climbed above three percent?
This market continues to be a battleground between cheap money and bond yields. Yet my feeling is that if yields move to above three percent or even four percent, so what? Yes, the stock market would likely wreak havoc because that would mean the Fed’s bond buying would be reduced; but like a cocaine addict, it will take time for the stock market to reduce its dependency on cheap money.
The ironic thing is that the stock market is getting antsy because the economic recovery is occurring, but is this not what we want to see in an economic rebound? The stock market seems like it would still prefer the cheap money over rising yields and higher interest rates.
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