Whipsawed U.S. stocks have gained an unexpected ally in recent days - a historic plunge in bond yields.
At the same time, the drop in yields has so far been a boon for equities, especially tech and other large growth stocks whose relatively strong performance helped support the benchmark S&P 500. The index finished up 1.4% for the week, with strength in technology stocks outweighing sharp declines in bank shares.
“The market is not quite sure how the Fed is going to look at this,” said Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions. Treasury yields fell to historic lows after the Fed cut rates to support the economy at the beginning of the COVID-19 pandemic, fueling a stock market rally that saw the S&P 500 double from its March 2020 trough at one point.
Other metrics show stocks remain expensive by historical standards. The S&P 500 trades at 17.5 times forward earnings estimates compared to its historic average P/E of 15.6 times, according to Refinitiv Datastream.