Get updates on recent capital market data and trends, including possible expectations for future outcomes.
The 10-year Treasury yield rose 0.4% in February. Since 2003, there have only been eight larger monthly jumps in the benchmark bond rate. The rate spike may create headwinds for the economy, but previous sharp increases did not lead to prolonged stock weakness.
The focus of investors shifted from the accommodative backdrop provided by fiscal and monetary policy and the improving global economy to the rising rate environment. Since the end of 2020, the rise has accelerated, jumping from 0.92% to a high of 1.60% on February 25 on a combination of rising inflation expectations, the prospect for continued heavy issuance and a “taper tantrum” in reaction to nervousness that the Fed will begin to trim asset purchases.
Many people were eager to put 2020 behind them and look at with hope to better times. The new year brought resolution of some political uncertainty, but many of last year’s question marks remain.
The 12 months following the pre-pandemic market peak have been unlike any previous period for stocks on record. On average, stock performance has been negative one year after a bear market peak, but this time stocks gained 16% since the pre-pandemic peak in February 2020.
As we pass the anniversary of last February’s market peak, the pace and strength of the bull run continues to impress observers. The S&P 500® Index has gained 75% from the March low, the best start to a bull market since the 1930s, per Bloomberg. This represents more than half of the median return from the 13 previous bull cycles at 126%.
Recent inflation figures are still below the Federal Reserve’s target level, but expectations for higher inflation is rising due to proposed stimulus measures and infrastructure spending. A jump in inflation could lead to a shift in Fed monetary policy and potentially bring the current stock rally to an end.
