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  • John Pickart

Rate Increases & Equities

While the Fed has signaled it likely will begin tapering their purchases of bonds, the YoY change in the 10-year treasury already exceeded 100 basis points earlier this year. Of course, the start of COVID and the Fed response depressed yields during 2020 making the YoY change this year easy to beat.


The top chart plots the YoY change in yield of the 10-year treasury along with the S&P 500. During the last 30 years, there were nine periods in which the YoY change was 100 bps or greater. I created these charts to explore the historical impact on the equity markets as a response to these yield changes. The bottom chart highlights the returns of the S&P 500 following the date of the first 100 bps YoY change.


Notice the mixed reaction during the following three months but after six and 12 months, stocks were higher in all periods. This year, the S&P was up 9.0% and 17.0% during the following three and six months, respectively, since the YoY change reached 100 bps in March.


Although it appears a YoY rate increase is nothing to fear, the 9/9/99 period not only saw YoY rate change of 100 bps but it eventually reached 200 bps. This period, the dot-com bust, saw equity weakness from 2000 to early 2003. Also, looking back to 1987, the YoY yield change was greater than 200 bps by early October of that year. On Black Monday the 19th, the S&P 500 fell 20%.



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