Finally rising interest rates

Stocks jumped up and down this week between gains and losses as surging yields take center stage.

Wall Street stocks traded mixed on Friday, with battered technology shares recovering some declines amid encouraging data, as fears of rising interest rates caused investors to take fright.

The Nasdaq traded 1% higher, trying to pare losses at the end of the week. The S&P 500 traded slightly above the flat line, while the Dow shed more than 200 points, or 0.7%, around noon in New York.

A day earlier, the Nasdaq dropped 3.5% on Thursday for its worst session since October. The index was on track to post a weekly loss of more than 5% as tech stocks unwound some of their steep 2020 gains this week, as benchmark Treasury yields spiked to their highest levels since January 2020. The rise in rates are tied to a range of corporate and consumer borrowing costs, and may undermine the recovery if they jump too quickly.

On Friday, the U.S. House of Representatives is anticipated to pass a $1.9 trillion COVID-19 stimulus package, which would include measures in President Joe Biden’s original proposal like $1,400 direct checks to most Americans, $400 per week in augmented federal unemployment insurance and $350 billion in state, local and tribal government relief. The bill would then head to the U.S. Senate, with many lawmakers aiming to pass the bill before a mid-March cliff for when current pandemic-era benefits are set to expire.

A rapid rise in Treasury yields this week has deterred investors from risk assets, as the specter of rising borrowing costs for companies and a jump in inflationary pressures mounted. The yield on the benchmark 10-year note jumped to a fresh one-year high of as much as 1.6% on Thursday before cutting some gains.

Driving rates higher has been a combination of higher growth expectations as well as higher inflation expectations. Until recently, market participants have been able to digest the upward drift in long-term rates, but it appears that the next leg up in interest rates is a bigger bite to chew,” Charlie Ripley, senior investment strategist for Allianz Investment Management, told Yahoo Finance in an email. “Looking at where real yields were at, they were simply too low when considering growth expectations, and it’s likely that long-term real yields will continue to drift higher as economic data improves.”

Other strategists echoed this sentiment, and noted that markets’ fears over a higher-rate environment may be overblown.

“Don’t fear rising rates. The last 16 rising rate environments, the markets rallied in 13 of those environments,” Eric Diton, managing director of The Wealth Alliance, told Yahoo Finance. “So rising rates are simply reflecting the fact that the economy is recovering, vaccinations are working. This is good news. And quite frankly half a percent on a 10-year Treasury was ridiculous, it was a joke. And 1.5% is much more realistic.”

Over the Wiseguy

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