OT/FA....(but there's plenty of vacant space in this thread...ggg))
Excerpts from a WSJ story this AM which......naturally.......support some of the views i have been propounding here:
Higher Bond Yields May Not Skewer Stocks; Some Traders See Long-Term Rates As Simply Returning to Normal In a Sign of a Strong Economy
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Stock investors are tearing out their hair for fear that surging Treasury-bond yields will torpedo the stock market.
But not Jim Paulsen. The chief investment strategist for Wells Capital Management, which oversees $175 billion, figures higher yields are just great for stocks.
"I've just got a sense of optimism about this thing," Mr. Paulsen says. "If you are a real stock bull, you've got to root for a higher bond yield."
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The fear is that higher yields mark the end of the easy-money era that has been the stock market's prime driver since 2002. Consumers will find it more expensive to buy a home or to take out a home-equity loan and buy a new car. Businesses will find new investment more costly. Investors will have to think twice before tossing more borrowed money into the stock market -- they might even take some out. Bonds and money-market funds, with their higher new rates, will draw money away from stocks.
Mr. Paulsen scoffs at such worries. He and some other like-minded investors figure stocks this year are due to jump an additional 10% or 11% from here. That would send the Dow industrials through the 12000 mark, obliterating the record of 11722.98 that the industrial average set more than six years ago, in January 2000. (Mr. Paulsen expects the Standard & Poor's 500-stock index to rise 10%, too, but that wouldn't bring it back to its record 1527.46, which it also hit in 2000. The S&P fell harder in the bear market, and it has further to recover.)
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"The rise {in rates} we have seen lately is fairly modest and is almost just playing catch-up with the fact that they didn't move earlier when short-term rates did," says Janna Sampson, director of portfolio management at OakBrook Investments in Lisle, Ill., outside Chicago. "It is a sign that the world is moving back to normal," she adds. The 10-year yield would have to rise to 6% before it put a serious damper on stocks, she adds.
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With consumer-price inflation running at more than 3%, real, inflation-adjusted yields remain low. If the Fed wants real interest rates to be around 2.75% or 3%, then bond yields and Fed target rates would have to move closer to 6%. Interest rates aren't even excessive compared with "core" inflation, which excludes volatile food and energy prices. Core inflation has been a little more than 2% lately.
In other economic cycles, investors considered a 5% yield normal. When bond yields peaked around the end of 1999, the last time they had a big run-up, they were close to 7%. When they peaked in 1994, they were about 8%.
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Some analysts figure that if bond yields keep rising, the Fed will be able to stop raising short-term rates because the bond market will cool things off without further Fed action. Mr. Paulsen, however, thinks the Fed will have to push its target short-term rate as high as 6% before it is done, from 4.75% today. |
