Rising Interest Rates and Stock Performance

 
View from the Observation Deck  
  1. Today's blog post provides some historical perspective on how the S&P 500 Index has performed in calendar years when the yield on the benchmark 10-year Treasury note (T-note) finished the year higher than where it began.
  2. From 1975-2017, there were 20 such years (see table). The S&P 500 Index posted a positive total return in 17 of those 20 years. The yield on the 10-year T-note is up markedly so far in 2018. 
  3. The yield on the 10-year T-note increased in excess of 100 basis points in 10 of the 20 years, with the most recent being 2013.
  4. Monitoring the yield on the 10-year T-note is commonplace for equity investors, in our opinion. The higher the yield trends the more competitive Treasuries become as an alternative investment opportunity to equities.
  5. Standard & Poor's showed that, from 1953 through March 2012, U.S. stocks posted their best returns when the yield on the 10-year T-note rose to around 4.0%, according to Businessweek. Stock prices usually retrenched when the yield topped 6.0%. Its yield stood at 2.89% on 2/20/18.  
This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is a capitalization-weighted index comprised of 500 stocks (currently 505) used to measure large-cap U.S. stock market performance.

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Posted on Thursday, February 22, 2018 @ 3:04 PM

These posts were prepared by First Trust Advisors L. P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.