Why rising Treasury yields are a drag on the stock market

Yields are rising in the U.S. and around the world, driven by the imperative need of central banks to get tough on inflation — which is leaving the once-perennially popular trade that favors stocks over other asset choices dead for now.That trade, known as TINA — an acononym for ‘there is no alternative’ to equities — has long been talked about as being vulnerable since the 2020 pandemic era began.

Traders see a 50% chance that the fed funds target range gets to as high as 4.25% to 4.5% by December — above prior expectations — which will likely hit the price-to-earnings ratio of stocks. Rising real rates reflect a cost of borrowing. But they will probably need to rise another one to two full percentage points each, “which is a significant challenge because that’s the real cost of financing, whether it’s for a single family residence or a company buying equipment,” Silvia said via phone Tuesday.

The result is “a very difficult environment, with many central banks all tightening at the same time — something that we’ve not really had for many, many years,” Silvia, the former chief economist at Wells Fargo Securities, told MarketWatch. “That’s creating an uncertain environment for the global economy, an uncertain path of policy changes, uncertainty over whether there will be a financial breaking point, and the feeling that anything could happen.

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'Some twisted logic about valuation multiples’: Stock-market investors appear complacent as rates rise, warns Morgan StanleyThe stock market has been complacent in the face of rising real yields and expectations for a higher terminal value for the federal-funds rate, moves seen in... Lambo? Treasury at 3.5, CPI at 6 or 7 and the real yield is +1? That's some math. Wall Street math. That bird won't fly.
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