Investing.com - Higher bond yields are the"main risk" to share prices in the US and will give support to the dollar in the near term, analysts at BCA Research have argued.
The uptick sparked a wave of selling in major currencies against the greenback, with the euro dipping toward parity and sterling briefly shedding more than 1%. Investors, who initially welcomed the prospect of looser regulation and tax cuts during a second Trump term in the White House, have come to fret that the tariffs could reignite inflationary pressures, strain government coffers, and ultimately limit the space for Federal Reserve policymakers to roll out more interest rate cuts.
Meanwhile, recently frothy valuations have also made US equities"more vulnerable" to elevated Treasury yields, the analysts said. US equity risk premium -- the extra return investors can expect for holding stocks over government bonds -- is"very depressed," they added.
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Rising Bond Yields and Stretched Valuations Create Headwinds for Global StocksBCA Research's MacroQuant report indicates that rising bond yields and high equity valuations pose challenges for global stock markets. Despite improving economic growth indicators, persistent inflation and tightening monetary policies negatively impact market sentiment. The model forecasts below-average returns for the S&P 500 in the next one to three months and favors defensive sectors like healthcare and utilities. Regionally, the U.S. remains a strong performer, while BCA suggests investors may benefit from increasing bond duration later in 2025. The report also notes the expected strengthening of the U.S. dollar and a cautious outlook on equities.
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