16-05-2025
The bond market is running the show again. The key level to watch
It's the bond market's world, and equity investors just live in it. The 10-year Treasury note yield staged a big reversal this week, giving a boost to stocks. The benchmark rate spiked higher to start the week after the U.S. and China agreed to lower tariffs for 90 days. Midway through the week, though, some trepidation entered investor sentiment, as the 10-year hovered around the key 4.5% level. But the rate quickly fell back below that level on Thursday — helping the S & P 500 post a four-day winning streak. The yield fell again on Friday to around 4.39%. US10Y 1M bar 10-year U.S. yield in past month Investors going forward should keep an eye on the 10-year, especially if it tries to break back above 4.5%. "S & P 500 daily returns have started to meaningfully weaken when the 10-year Treasury yield has increased above 4.5% since 2021 (in this rate cycle)," wrote Tavis McCourt, institutional equity strategist at Raymond James. He pointed out that the S & P 500's annualized returns have dropped to just 1% when the 10-year yield trades above 4.5%. That's compared to 10.4% with a yield below 4.4%. When the 10-year yield trades under 4.3%, the S & P 500 averages a return of 19.6%. Returns for mid- and small-cap stocks are even worse when the 10-year yield tops 4.5%. On an annualized basis, the S & P Midcap 400 loses 16.6% on average under such high yields, while the S & P Small Cap 600 loses 18.4%, McCourt pointed out. Elsewhere Friday morning on Wall Street, Loop Capital raised its price target on Meta Platforms to $888 from $695, implying more than 30% upside. "While our pre-quarter checks had pointed to resilience, our expectation that a drop in spending intensity from China-based advertisers would flatten revenue growth was a misread," analyst Rob Sanderson wrote in a Thursday note. "This large spending cohort has backed off (with some geographic reallocation) but AI-driven performance gains across the platform are more than an offset."
