Low Bond Yields Won't Save Stocks Like in 2016
Unlike now, inflation rates three years ago were signaling a stronger economy ahead.
The stock market shouldn’t take comfort from lower bond yields this time.
Photographer: Don Emmert/AFP/Getty Images
U.S. Treasury securities have staged an amazing rally, with yields on benchmark 10-year notes dropping last month by the most since mid-2016 as the trade wars escalated on multiple fronts. And while the dour message being sent by bond markets helped pull equities lower, the surprise is that the fallout hasn’t been greater.
More than a few market participants are pointing to 2016 as a major reason why stocks haven’t been hit harder. Bond yields also dived back then on economic worries, with 10-year rates bottoming at 1.36%, compared with about 2.06% this week, but the S&P 500 Index managed to rally 9.54% that year following a strong second half. Developments three summers ago should provide little comfort for investors today. Two critical differences signal that the risk in holding equities is significantly higher. Simply put, the yield curve is decidedly flatter and rates of inflation are headed down.