Wall St Week Ahead Bruised market eyes Treasury yields to gauge stocks' path

posted its biggest monthly drop since March 2020 in September, while pulling back as much as 5% below its all-time high for the first time this year.

Yields, which move inversely to bond prices, are rebounding from historically low levels and their recent climb is widely seen as a sign of economic strength. A spread of between zero and 150 basis points is a "sweet spot" for stocks, which has been consistent with an 11% annual return for the S&P 500, based on historical data, according to Ed Clissold, chief U.S. strategist at Ned Davis Research. The S&P 500 has averaged a 9.1% gain annually since 1945, according to CFRA's Stovall.

The speed at which yields rise is also important, as is the economic and monetary policy backdrop, analysts at Goldman Sachs said. Higher yields pressure stock valuations by increasing the rate at which future cash flows are discounted, a typical way to value equities. Such pressure is especially acute for tech and other growth shares whose valuations rely more on future profits.fell 2% against a 0.9% drop for the overall index since last week's Fed meeting.

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