The Stock Market Has a Real Problem—a Real Yield Problem

With yields rising, stocks have real competition from bonds in a way they haven’t for a decade and a half. The yield on the 10-year U.S. Treasury note hit 4.25%, up 0.3 points since the start of August and near its highest since 2007. That’s a nice payout, especially with stocks appearing pricey. It’s a big reason the Dow Jones Industrial Average fell 2.2%, the S&P 500 lost 2.1%, and the Nasdaq Composite dropped 2.6% this past week.

Others are more fundamental, tied to ever-evolving expectations of Federal Reserve policy. In the past week, stronger-than-expected retail sales, housing starts, and industrial production data propped up the case for a soft landing for the U.S. economy—the Atlanta Fed’s GDPNow tool projects 5.8% gross-domestic-product growth during the third quarter. There’s a downside to that strength.

“Creditors deserve to make a living, too,” says James Grant, editor of Grant’s Interest Rate Observer. “It is terrific for savers, of course, and not so terrific for people who have positioned themselves in the expectation that the negative real yields of recent years would persist.”

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