High and rising yields no barrier to higher stocks

Fears that high and rising Treasury yields will pummel Wall Street are understandable, but ultimately misplaced – history shows that the link between yields and stocks ranges from patchy at best, to non-existent.The third-quarter earnings season under way shows profit growth of around 5%, while the bullish 2024 outlook has held up firmly – analysts are still pencilling in earnings growth of around 12%.

“Over the past 60 years there is basically no relationship between the average level of yields and S&P 500 returns, at least at a quarterly frequency,” says Stuart Kaiser, head of equity trading strategy at Citi.The chart below from Kaiser and his colleagues shows the relationship between average quarterly S&P 500 returns and average 10-year yields every quarter going back to 1962. If there is a pattern, it is almost impossible to spot.

Slicing the data in a slightly different way, Cox calculates that there have been 50 three-month periods since 1962 where the 10-year yield has risen half a percentage point or more, including the August-October period this year.

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