{"id":179821,"date":"2021-02-17T00:43:00","date_gmt":"2021-02-16T21:43:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/why-the-stock-markets-worst-case-scenario-depends-on-these-3-ingredients\/"},"modified":"2021-02-17T00:43:00","modified_gmt":"2021-02-16T21:43:00","slug":"why-the-stock-markets-worst-case-scenario-depends-on-these-3-ingredients","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/why-the-stock-markets-worst-case-scenario-depends-on-these-3-ingredients\/","title":{"rendered":"#\n  Why the stock market\u2019s \u2018worst-case\u2019 scenario depends on these 3 ingredients"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3cd1ab2bc99\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3cd1ab2bc99\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/why-the-stock-markets-worst-case-scenario-depends-on-these-3-ingredients\/#Rising_yields_widening_credit_spreads_and_rising_dollar_would_spell_trouble_Jefferies\" >Rising yields, widening credit spreads and rising dollar would spell trouble: Jefferies<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/why-the-stock-markets-worst-case-scenario-depends-on-these-3-ingredients\/#William_Watts\" >William Watts<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong>#<br \/>\n  Why the stock market\u2019s \u2018worst-case\u2019 scenario depends on these 3 ingredients<br \/>\n<\/strong>&#8221;<\/p>\n<h2 class=\"article__subhead\" itemprop=\"alternativeHeadline\"><span class=\"ez-toc-section\" id=\"Rising_yields_widening_credit_spreads_and_rising_dollar_would_spell_trouble_Jefferies\"><\/span>\n  Rising yields, widening credit spreads and rising dollar would spell trouble: Jefferies<br \/>\n<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><\/p>\n<div class=\"column column--full article__content\">\n<div id=\"js-article__body\" class=\"article__body article-wrap at16-col16 barrons-article-wrap\" itemprop=\"articleBody\" data-sbid=\"WP-MKTW-0000167485\">\n<div class=\"barrons-article-ad-wrapper\">\n<div data-track=\"barrons-article-ad-wrap\" class=\"barrons-article-ad sticky_item\">\n<div class=\"barrons-main-article-ad-target sticky_target body_ad\" aria-hidden=\"true\"><\/div>\n<\/p><\/div>\n<\/p><\/div>\n<p>       Investors are fretting over Treasury yields and wondering when a rate rise could start to crimp a stock-market rally, though they weren\u2019t yet worried enough Tuesday to prevent major benchmarks from notching another round of all-time peaks.<\/p>\n<p> So when does the pain of rising yields, which makes it harder to justify stretched equity valuations, start to make a difference? With the yield on the 10-year Treasury note<br \/>\n        TMUBMUSD10Y,<br \/>\n        <bg-quote field=\"percentchange\" format=\"0,000.000%\" channel=\"\" class=\"\">1.303%<\/bg-quote><br \/>\n       moving back above 1.2%, a challenge of the 1.5% area, which is the equivalent of the dividend yield on the S&amp;P 500<br \/>\n        SPX,<br \/>\n        <bg-quote field=\"percentchange\" format=\"0,000.00%\" channel=\"\/zigman2\/quotes\/210599714\/realtime\" class=\"negative\">-0.06%<\/bg-quote><span>,<\/span><br \/>\n       could soon be in store, wrote Sean Darby, global head of strategy at Jefferies, in a Tuesday note.<\/p>\n<div class=\"paywall\">\n       That event \u201cwill probably coincide with the first test for the valuations of the higher PE stocks and the relative performance of the S&amp;P 500 versus more loftier valued indices such as the Nasdaq-100,\u201d he wrote, referring to the P\/E, or price-to-earnings ratio, a common measure of stock market valuations. <\/p>\n<p>Historically, low Treasury rates have been seen justifying lofty valuations for equities, as investors have little choice but to look to stocks for returns. While Treasury yields remain low, the move higher could threaten equities with the most stretched valuations, strategists have warned. Yields and bond prices move in opposite directions.<\/p>\n<p>But Darby delves deeper, arguing that financial markets have likely undergone a \u201cregime change\u201d as investors adapt to the Federal Reserve\u2019s average-inflation targeting setup, which would see the central bank allow inflation to overshoot its target and the economy to run hot before moving to tighten policy.<\/p>\n<p>That regime change amid expectations for abundant liquidity may be illustrated by the continued rally in junk, or high-yield, corporate bonds. Those yields have fallen sharply, even trading below Treasurys on an inflation-adjusted basis for the first time in history, he noted.<\/p>\n<p>Meanwhile, the U.S. dollar, while seeing a modest bounce to begin 2021, hasn\u2019t yet staged a convincing turnaround after its steep 2020 slide, analysts said. A weaker dollar is <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/general\/\" data-internallinksmanager029f6b8e52c=\"3\" title=\"General\" target=\"_blank\" rel=\"noopener\">general<\/a>ly seen as favorable for stocks by helping to keep global financial conditions loose.<\/p>\n<p>\u201cIn reality the worst case scenario for equity investors would be a selloff in [Treasurys] accompanied by widening credit spreads and a strong dollar,\u201d Darby said. \u201cTo date, higher U\u2019S\u2019 bond yields have not been able to arrest the decline in the greenback \u2014 real interest rates are still negative.\u201d<\/p>\n<p>So what should stock-market investors expect?<\/p>\n<p>First off, \u201cmuch higher yields,\u201d he said, noting that all three of Jefferies\u2019 indicators on the direction of the 10-year yield \u2014 the 10-year vs. 2-year U.S. yield curve vs. inflation expectations; the yield curve vs. U.S. M1 money supply; and the yield curve vs. the copper\/gold ratio \u2014 are all pointed vertical, particularly the relationship between money supply and the yield curve (see chart below).<\/p>\n<div id=\"cx-membership-tile\"><\/div>\n<div data-layout=\"inline\n                \" data-layout-mobile=\"\" class=\"\n          media-object\n          type-InsetMediaIllustration\n            inline\n  article__inset\n          article__inset--type-InsetMediaIllustration\n            article__inset--inline\n  \"><\/p>\n<figure class=\"\n        media-object-image\n        enlarge-image\n        renoImageFormat-\n        img-inline\n        article__inset__image\n      \" itemscope itemtype=\"http:\/\/schema.org\/ImageObject\"><\/p>\n<div style=\"padding-bottom:80.15625%;\" data-mobile-ratio=\"80.15625%\" data-layout-ratio=\"80.15625%\" data-subtype=\"\" class=\"image-container  responsive-media article__inset__image__image\">\n        <img decoding=\"async\" srcset=\"https:\/\/images.mktw.net\/im-299730?width=140&amp;size=1.2475633528265107 140w,\nhttps:\/\/images.mktw.net\/im-299730?width=540&amp;size=1.2475633528265107 540w,\nhttps:\/\/images.mktw.net\/im-299730?width=620&amp;size=1.2475633528265107 620w,\nhttps:\/\/images.mktw.net\/im-299730?width=700&amp;size=1.2475633528265107 700w,\nhttps:\/\/images.mktw.net\/im-299730?width=860&amp;size=1.2475633528265107 860w,\nhttps:\/\/images.mktw.net\/im-299730?width=1260&amp;size=1.2475633528265107 1260w\" sizes=\"(max-width: 140px) 100px,\n(max-width: 540px) 500px,\n(max-width: 620px) 580px,\n(max-width: 700px) 660px,\n(max-width: 860px) 820px,\n1260px\" src=\"https:\/\/images.mktw.net\/im-299730?width=620&amp;size=1.2475633528265107\" data-enlarge=\"https:\/\/images.mktw.net\/im-299730?width=1260&amp;size=1.2475633528265107\" alt=\"\" title=\"\"><\/div><figcaption class=\"wsj-article-caption article__inset__image__caption\" itemprop=\"caption\"><span class=\"wsj-article-credit article__inset__image__caption__credit\" itemprop=\"creator\"><br \/>\n            Jefferies<br \/>\n          <\/span><br \/>\n  <\/figcaption><\/figure>\n<\/div>\n<p>Jefferies expects the 10-year yield to hit 2% by year-end, Darby noted.<\/p>\n<p>Secondly, high price-to-earnings ratio stocks in the S&amp;P 500 saw a sharp absolute return as the 30-year Treasury yield<br \/>\n        TMUBMUSD30Y,<br \/>\n        <bg-quote field=\"percentchange\" format=\"0,000.000%\" channel=\"\" class=\"\">2.091%<\/bg-quote><br \/>\n       plunged, Darby said (see chart below), noting the same was true for the tech-concentrated Nasdaq-100<br \/>\n        NDX,<br \/>\n        <bg-quote field=\"percentchange\" format=\"0,000.00%\" channel=\"\/zigman2\/quotes\/210598364\/realtime\" class=\"negative\">-0.25%<\/bg-quote><span>.<\/span><\/p>\n<div data-layout=\"inline\n                \" data-layout-mobile=\"\" class=\"\n          media-object\n          type-InsetMediaIllustration\n            inline\n  article__inset\n          article__inset--type-InsetMediaIllustration\n            article__inset--inline\n  \"><\/p>\n<figure class=\"\n        media-object-image\n        enlarge-image\n        renoImageFormat-\n        img-inline\n        article__inset__image\n      \" itemscope itemtype=\"http:\/\/schema.org\/ImageObject\"><\/p>\n<div style=\"padding-bottom:80.3125%;\" data-mobile-ratio=\"80.3125%\" data-layout-ratio=\"80.3125%\" data-subtype=\"\" class=\"image-container  responsive-media article__inset__image__image\">\n        <img decoding=\"async\" srcset=\"https:\/\/images.mktw.net\/im-299736?width=140&amp;size=1.245136186770428 140w,\nhttps:\/\/images.mktw.net\/im-299736?width=540&amp;size=1.245136186770428 540w,\nhttps:\/\/images.mktw.net\/im-299736?width=620&amp;size=1.245136186770428 620w,\nhttps:\/\/images.mktw.net\/im-299736?width=700&amp;size=1.245136186770428 700w,\nhttps:\/\/images.mktw.net\/im-299736?width=860&amp;size=1.245136186770428 860w,\nhttps:\/\/images.mktw.net\/im-299736?width=1260&amp;size=1.245136186770428 1260w\" sizes=\"(max-width: 140px) 100px,\n(max-width: 540px) 500px,\n(max-width: 620px) 580px,\n(max-width: 700px) 660px,\n(max-width: 860px) 820px,\n1260px\" src=\"https:\/\/images.mktw.net\/im-299736?width=620&amp;size=1.245136186770428\" data-enlarge=\"https:\/\/images.mktw.net\/im-299736?width=1260&amp;size=1.245136186770428\" alt=\"\" title=\"\"><\/div><figcaption class=\"wsj-article-caption article__inset__image__caption\" itemprop=\"caption\"><span class=\"wsj-article-credit article__inset__image__caption__credit\" itemprop=\"creator\"><br \/>\n            Jefferies<br \/>\n          <\/span><br \/>\n  <\/figcaption><\/figure>\n<\/div>\n<p>       \u201cThese are the most sensitive to higher U.S. long-term rates,\u201d he said, noting that equities are long duration assets.<\/p>\n<p>The 30-year yield jumped 8.6 basis points to a more-than-one-year high 2.089% Tuesday, while the 10-year yield rose 9.8 basis points to 1.298%. The Dow Jones Industrial Average<br \/>\n        DJIA,<br \/>\n        <bg-quote field=\"percentchange\" format=\"0,000.00%\" channel=\"\/zigman2\/quotes\/210598065\/realtime\" class=\"positive\">+0.20%<\/bg-quote><br \/>\n       eked out a gain of 64.35 points, or 0.2%, in choppy trade, building on last Friday\u2019s record close as investors returned from a three-day holiday weekend. The S&amp;P 500 ended 0.1% lower, while the Nasdaq Composite<br \/>\n        COMP,<br \/>\n        <bg-quote field=\"percentchange\" format=\"0,000.00%\" channel=\"\/zigman2\/quotes\/210598365\/realtime\" class=\"negative\">-0.34%<\/bg-quote><br \/>\n       shed 0.3%.<\/p><\/div>\n<\/div><\/div>\n<p><\/p>\n<div class=\"byline article__byline\">\n<p>      <span>By<\/span><\/p>\n<div class=\"author  hasMenu\" data-scrim='{\"type\":\"author\",\"header\":\"William Watts\",\"subhead\":\"The Wall Street Journal\",\"list\":[]}' itemscope itemprop=\"author\" itemtype=\"http:\/\/schema.org\/Person\">\n<h4 itemprop=\"name\"><span class=\"ez-toc-section\" id=\"William_Watts\"><\/span>William Watts<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/p><\/div>\n<\/div>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a> articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/news\/\" target=\"_blank\" rel=\"noopener\">News category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"http:\/\/www.marketwatch.com\/news\/story.asp?guid=%7B21005575-02D4-D4B5-4572-D28E3D4B2F09%7D&#038;siteid=rss&#038;rss=1\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;# Why the stock market\u2019s \u2018worst-case\u2019 scenario depends on these 3 ingredients &#8221; Rising yields, widening credit spreads and rising dollar would spell trouble: Jefferies Investors are fretting over Treasury yields and wondering when a rate rise could start to crimp a stock-market rally, though they weren\u2019t yet worried enough Tuesday to prevent major benchmarks&#8230;<\/p>\n","protected":false},"author":1,"featured_media":179822,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"","fifu_image_alt":"","footnotes":""},"categories":[70897],"tags":[],"class_list":["post-179821","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/179821","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=179821"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/179821\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/179822"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=179821"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=179821"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=179821"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}