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The stock market is hovering around record highs after getting a boost from Donald Trump’s election victory.
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Bonds, meanwhile, have seen a sharp sell-off since the election.
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For signs of Trump trading fatigue, investors should watch 10-year Treasury yields, JPMorgan says.
With market enthusiasm surrounding Donald Trump’s presidential election victory pushing stocks and crypto to record highs, JPMorgan says investors looking for signs of rally fatigue should keep an eye on the Treasury market.
In new research, the firm’s equity strategy team said the 5% level on 10-year Treasury yields could be a turning point for U.S. stocks. It currently trades at around 4.3%.
“We think the impact of bond yields on stock valuations is starting to change around 5%, from a positive/reflationary impact, to increasing concerns about the sustainability of the upcycle and increasing risk of accidents,” the team wrote on Monday. by the company’s head of global equity strategy, Mislav Matejka.
Treasury yields fell after Trump’s victory on expectations that the president-elect’s immigration and protectionist trade policies would fuel inflation and force the Federal Reserve to raise interest rates. The 10-year bond rose as much as 21 basis points to 4.47% on Wednesday, the day after the elections.
Adding to the upward pressure on bond yields is the prospect that “bond vigilantes” could express their displeasure over the rising federal deficit by selling government bonds.
“If the Trump administration pursues an excessively stimulative fiscal policy, with lots of spending and tax cuts, leading to even bigger deficits, I think this could lead to the bond watchers pushing interest rates to levels that cause problems for the economy,” said Ed Yardeni. , the president of Yardeni Research tells DealBook in a newsletter published on Saturday.
In the absence of a more than 5% rise in the 10-year Treasury note, JPMorgan said the market’s direction in the short to medium term would be determined by the policies Trump prioritized.
JPMorgan said it would face trouble in the stock markets if the newly elected president’s second term begins with immigration restrictions and higher rates. Meanwhile, Trump’s focus on tax cuts would be a positive outcome for stock markets, the company said.
Read the original article on Business Insider
