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“We’re In Uncharted Territory” | Warren Pies on Treasury Issuance, Housing Market, Oil, And Recession Risk
Forward Guidance
How Bond Yields Impact Stocks and Market Breadth
Bond yields have historically served as a hedge against stocks, but recent market trends show otherwise. Last year, the bond market crashed alongside the stock market, breaking the traditional correlation. The rise in bond yields correlates with a decrease in stock market breadth, as seen in the stock market peaking when the Treasury announced funding plans with increasing yields. Stocks and bonds compete for investment dollars, and as risk-free rates go up, stocks become relatively less attractive. The market structure has shifted towards a scenario where a few mega-cap tech stocks perform differently from the rest of the market, leading to narrow breadth. The correlation between the sell-off, rising rates, and narrow breadth is evident, highlighting the impact of bond yields on stocks and market breadth.
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