Bond yields are the 'Elephant in the Room' stock investors are ignoring

Listen to this article in summarized format

Bank of America Corp's latest survey of global fund managers shows they have 56% of their portfolios in equities, the highest proportion since November 2021. The bullishness toward stocks comes even as the same survey shows that a "disorderly rise in bond yields" is considered the second-largest threat to the equity market after concerns about an AI bubble. In a related risk, 25% of respondents cited a second wave of inflation as the largest.

The jump in yields is the "elephant in the room" which threatens to derail an equity market that has had trouble staying near records after hitting them over the past year, Tyler Richey, editor of the Sevens Report Technicals newsletter said.

Yet while strategists up and down Wall Street are watching the rise in yields with some concern, they're for the most part concluding that they haven't climbed high enough to derail the bull case for stocks. After all, history shows that sudden spikes in yields aren't always poison for the stock market.

"You should be bullish, or at least opportunistic here," JC O'Hara, chief technical strategist at Roth Capital Partners LLC, said of the stock market sitting near record highs despite climbing yields. Risk appetites are improving on "stronger earnings expectations, better economic outlooks, and a lighter focus on Middle East tensions," he said, adding that forward returns for the S&P 500 tend to be strong when risk appetite is improving.

Read more:US stocks: US market sinks as bond yields rise, Walmart results disappoint

Of course, even current stock-market bulls concede that there is a point when rates may potentially start to bite the stock market if they keep rising.

"We're OK around here, I think a move closer to 5% probably is the thing that would rattle the market, akin to what happened in 2023," Liz Ann Sonders, chief investment strategist at the Schwab Center for Financial Research, said.

The S&P 500 sank 10% from the end of July to late October that year amid a surge in the 10-year yield that made it briefly touch 5%.

Or as Matt Maley, chief market strategist at Miller Tabak + Co., said by phone: “Bond yields start to move higher and the equity market ignores it — until it doesn’t.”

(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today.

Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today.

Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price