Stocks and bonds are two of the better-known asset classes in the family of potential investments. Last week, they were in opposition.
Bond yields have been moving higher in anticipation of the Federal Reserve raising rates again. For a while last week, every maturity of Treasury – from the 1-month Treasury bill to the 30-year Treasury bond – boasted a yield above 4 percent. Some shorter-maturity Treasuries yielded more than 5 percent.
When bond rates move higher, borrowing becomes more expensive for companies. As the cost of doing business rises, the outlook for company earnings tends to moderate, pushing stock prices lower. (Companies in the financial industry are often an exception because financial companies often benefit from higher rates.)
In addition, higher bond yields may lead to lower stock prices as investors who seek income, and prefer to take less risk, move some assets from stocks to bonds. For example, more conservative investors who have held dividend-paying stocks to help achieve retirement income goals might choose to move some assets into bonds.
“Rising Treasury yields can make stocks less appealing because they allow investors to park money in instruments that now earn an attractive return…investment grade bonds saw inflows for 10 consecutive weeks…the longest streak since October…,” reported Isabel Wang of Morningstar.
Like a younger sibling who refuses to follow the lead of an older brother or sister, stock markets ignored rising bond rates last week. It’s difficult to know which one is on the right track, which makes being selective more important, according to Carleton English of Barron’s.
“This is no longer a black-and-white, buy-or-sell stock market. The era of ‘There is no alternative’ to growth-oriented tech stocks is in the rearview mirror, and both stocks and bonds offer compelling opportunities, if you pick the right ones.”
https://www.barrons.com/articles/how-the-planets-aligned-for-the-stock-market-and-ended-a-weekslong-losing-streak-253c4a1a?refsec=the-trader&mod=topics_the-trader (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2023/03-06-23_Barrons_Jupiter%20and%20Venus%20Are%20Aligned%20and%20the%20Stock%20Market%20is%20Rallying_4.pdf)
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* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
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