The 10-year Treasury yield has been on a tear in recent months, rising from just above 2 percent to almost 2.9 percent since last fall. The surge accounts for a divergence between bond yields and dividend yields on the stock market. The dividend yield on the S&P 500 is roughly 1.8 percent, so the 10-year now yields more than 100 basis points more than stocks. From an asset allocation perspective, this has led to concern that bonds now offer legitimate competition to stocks for the first time in a number of years.
Rising interest rates typically don’t have a negative impact on stock market returns, but with yields being so low for so long, it’s certainly possible this could cause a psychological shift in investor sentiment, especially considering the magnitude of the move up in stocks during this cycle.