Random Market Stat of the Day

It’s hard to overstate the impact of long-term interest rates on equity prices. As long as long-term yields head lower, the stock market does well. But when rates rise, it’s like running into the wind.
Since 1962, there have been over 2,300 weeks of trading. The yield on the 10-year Treasury bond has fallen for 1,060 of those weeks. During those weeks, the S&P 500 is up a combined 6,187%, which is about 22.5% on an annualized basis.
The 10-year yield was unchanged over 129 weeks. During that time, the S&P 500 was up just 4%, or 1.6% annualized.
And for the 1,112 weeks of rising yields, the S&P 500 was down 72.3%, or 5.8% a year. When you separate out the data like this, you can really see the impact that bond yields have on the market.
Perhaps the most important fundamental aspect of this market is that long-term interest rates have been remarkably flat for so long. For the last two-and-a-half years, long-term yields have traded in a band between 3.68% and 4.87%. Over 75% of the time, the yield has been between 4.0% and 4.5%.
In other words, stocks aren’t getting any help from bonds.

Posted by on February 14th, 2006 at 11:36 am


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