Unfortunately this website won't go past 20 years for 30Y yields, so I'm posting 10Y
Anyways, the notion that the Fed is done at 5% is pure fallacy. We're seeing inflation we haven't seen since the 80's, and a lot of it is structural. Aside from labor shortage and Russian oil, we have way too much deficit spending by the government and the Fed balance sheet exploded during the COVID QE.
Having taken out college loans at 10% interest, I wouldn't be surprised at all if yields went above 10%. People pegging the peak at 5 or 6% are gonna be in for a freakin' shock. I also expect rates to stay high until the Fed balance sheet comes back down, and we're talking 10 years or so because they're under water on all of the MBS they hold.
That doesn't mean the stock market has to go down though, the stock market went up in that era aside from the '87 crash. Focus in inflation trades, stay away from bonds, especially TLT, lol.
Note: I realize TLT is 20Y+, but no historical charts available for anything besides 10Y
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Considering how much QE is still floating around, the Fed is gonna be lucky if they can keep rates under 8% and control inflation.
And note that this makes me bearish on bonds, not necessarily the stock market.
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China is forcing companies like CATL and JD to cut prices to spur growth. More inflation coming. No other reason for JD to subsidize customers unless the govt is forcing them to.
stocks went sideways during 70s inflation because earnings growth helped counter rising bond yields. the trailing p/e kept going down, eventually to bottom at 7-8. right now the trailing p/e of S&P is 21+.
T-r-X
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US can't service $31.46 T debt with high interest rates.
CarlCarlson31
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@T-r-X and they won't. The US will default on their debt by 2036 at the latest. Look at the other two times in our history that it has happened.
T-r-X
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@CarlCarlson31, US is in better shape then many EU countries (Italy, Spain, Greece)
SgtOuiOui
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A continued sell off in the debt market would not only snap the stock market like a tiny twig under the weight of a asteroid, but, it would also melt down the entire "financial system" - meaning the pension funds, banks, funds, brokers, insurance companies... the system would cease to function if this continues.
hungry_hippo
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@SgtOuiOui, rates are up 4.5% since last year and nothing has melted down. What's another 4.5%? All of those companies posted a profit last year, financials are well off of last summer lows.
Look at the stock market charts in the 70's and 80's, aside from the Oct 87 crash, it went up.
The Fed WILL continue to raise rates. They have to. Plan accordingly. Don't buy long dated bonds. Inflation will continue to increase because China is doing stimulus again. Asia still has low rates with no plans to raise them.
hungry_hippo
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@SgtOuiOui, BTW, if you're in long term bonds, there will be more pain ahead. The rate inversion needs to disappear, and I'm convinced it's bond traders that are wrong, not the stock market
CarlCarlson31
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You're absolutely right. This plan was all mentioned in Agenda 2030. We knew all of this was going to happen. Why do you think they're pushing for a Fed CBDC backed by Bitcoin? Asset tokenization will render most banks useless in the future regardless. Tokenization has already played a massive roll in our finance system. That's literally how banking info is secured during transactions.
Briick
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so you're saying that an aggressive selling in the bond market will have no affect on stocks?
hungry_hippo
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@Briick, only short term then the market bounces. Market went up in the 70's and 80's with interest rates significantly higher.
Heck, look at the charts, the Dot Com bubble (1997 - 2000) happened when rates were higher than it is now.