(Bloomberg) — The turbulence in government bond markets that followed Donald Trump’s victory has led JPMorgan Asset Management’s key bond yield to warn that yields could return to levels that could threaten the stock market’s record run. to take.
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Bond prices fell dramatically immediately after Trump’s victory this week, fueled by speculation that the Republican will reignite inflation by cutting taxes and imposing tariffs.
Although 10-year yields have fallen after rising to 4.48%, it is likely they could return to 5% if Trump’s expected policies are implemented, said Bob Michele, chief investment officer and head of global fixed income at JPMorgan Asset Management . . Vincent Mortier, Amundi SA’s Chief Investment Officer, also flagged this as a potentially important level that could trigger a shift of cash from stocks to bonds.
“5% proved to be a very difficult level for the markets to absorb a few years ago,” Michele said Thursday at his company’s ETF Symposium.
“I would say that the discount rate applied to many asset classes will cause a pause and a consolidation, and I don’t think that’s unrealistic. Will this happen in the next few quarters? I don’t think so. If Congress and the new administration get going and all these plans unfold, that could happen.”
Until Trump takes office in late January, Michele expects 10-year yields to hover around 4% in the near term as investors buy the dip in bonds. But once the new government is in power and “legitimate proposals” are on the table, the sell-off could flare up again, he says.
So far, bond market volatility has not put a damper on stocks, which have soared to new all-time highs. Optimism about possible corporate tax cuts and a wave of deregulation after Trump’s victory fueled the rise, putting the S&P 500 on track for its best weekly performance of the year.
Paul Quinsee, head of global equities at JPMorgan Asset Management, sees less risk to equities due to a rise in bond yields. While valuations are a concern, he expects strong corporate earnings to continue to support stocks.
“We think earnings will be up about 12% to 13% next year,” Quinsee said at the same event on Thursday. “With profit growth in prospect, we will remain in the market.”
Michele is more skeptical. If Trump’s campaign proposals turn into policies that translate into higher inflation, the Federal Reserve — which delivered a widely expected quarter-percentage-point interest rate cut on Thursday — should respond, he said.
