00:00 Speaker A
It has been an eventful week for the bond market with Wall Street bracing for a rising deficit from President Trump's tax bill. What does that all mean for stocks? Our finances, Julie Hyman, joins now to closer look in our chart of the day, Julie.
00:24 Julie Hyman
Indeed, bond yields creeping up has caused some consternation among equity investors. And Julian Emmanuel over at Evercore ISI quantifies just what rising or elevated bond yields have meant over the past couple of years. He goes back to October 2022 and says, since then, what does it look like for stocks when bond yields on the 10-year treasury note were above 4 and a half percent, between 4 and a half and 4.75%, and 475 to 5%. And effectively, the bottom line is that stocks have performed better in this period when yields were lower. So he looks here at the cumulative returns in the S&P 500, around 60% when the yields were below 4 and a half percent. And this looks at the number of days that it was in that um in that range here. And then you can see here that stocks did much less well, or even were negative, uh the higher that we saw bond yields get. Um he says what we could have happen now is sort of a digestion period within stocks where they move sideways before he says moving to new record highs, but not until 2026. Earlier today, we talked to J Hatfield of Infrastructure Capital Advisors. He also had a similar opinion, although he got to it a little bit of a different way, talking about the effect on valuations within the S&P 500.
03:03 J Hatfield
It does matter where rates are from, at least, you know, from a target multiple. Like 22 is okay if rates are at 3.75. It's probably not going to be sustainable if we're at 4 and a half or 4 and a quarter. So, our bullishness, we have to be right about the Fed and inflation.
04:00 Julie Hyman
So in other words, what J is saying is that with the S&P 500 trading at about 22 times earnings, that that's an attractive valuation if we see borrowing costs as uh measured by treasury yields low enough. And he talks about his thesis that the Fed will indeed be able to cut rates before the end of the year, therefore, at least theoretically, bringing treasury yields down as something that would be supportive of of higher returns in stocks. We'll see how that all plays out, but at least over the past several years, that 4 and a half percent threshold in the 10-year has been a very important one for the equity market, Josh.
05:10 Josh
All right, thank you, Julie.
