Investors are feeling anxious as long-term interest rates have been on the rise this month, leading to concerns about the future of the stock market. Treasury yields reached new highs in 2024 after recent data indicated persistent inflation. Initially, Wall Street expected the Federal Reserve to make multiple rate cuts this year, but now they are only predicting one. The yield on the 10-year note has increased by nearly a percentage point since February, settling at 4.668% on Friday.
Many investors are worried that rising yields could hinder further stock market gains, particularly since stocks are already expensive compared to corporate earnings. In the past, rising yields have caused significant stock declines, affecting the additional return investors receive for holding stocks instead of bonds. The recent increase in yields has also impacted the present value that Wall Street assigns to companies’ future profits.
Despite concerns, the stock market saw a rebound on Friday following strong earnings reports from companies like Alphabet. However, the market remains volatile as traders eagerly await updates on interest rates from Fed Chairman Jerome Powell and the upcoming jobs report. The Treasury Department will also release its quarterly borrowing plan, shedding light on how the government plans to address its budget deficit.
While the market has been able to withstand rising yields thus far, the combination of slowing growth and higher inflation in recent reports has raised concerns about the future outlook. Investors are cautious about the impact of inflation on the bond market and the potential challenges that lie ahead.
Although some believe that yields will decrease by the end of the year, there is still uncertainty in the short term. The market is expected to remain volatile, with potential spikes in yields. Overall, while there may be challenges ahead, many investors are hopeful that the economy will continue to gradually improve over time.