Even as the Middle East conflict escalates, the S&P 500 just notched a second straight weekly advance. One reason: A perceived social contract is forming between Jerome Powell & co. and traders. It says Treasury yields at lofty highs are tightening financial conditions enough that no more central bank action is needed – freeing equities of restraints that have bound them for two years.
The view is too clever for its own good, says the likes of Mizuho International’s Peter Chatwell. Put simply, a world of 5% Treasury yields continues to threaten stock valuations and ramps up competition for risk capital.
“This is a major inconsistency in the market right now,” he says. “Sentiment in equities is listening mainly to what this means for the Fed funds rate, but bond yields are going higher, becoming more attractive relative to equity earnings yields, and forward earnings are being discounted by higher long-term rates.”
Extreme Treasury volatility remains the biggest story in financial markets. But even fresh swings in the world’s most important asset couldn’t hold stocks back – once again.
Download The Economic Times News App to get Daily Market Updates & Live Business News.
Top Trending Stocks: Sensex Today Live, SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price