One of the questions we continue to hear from clients is “at what level of yield will the stock market really start to have problems?” The answer of course is, “it depends.” It depends on what is driving yields higher (e.g., reflation or inflation), how fast we get there, and what phase of the yield curve cycle we are in—that is to say, which part of the curve is actually doing the steepening or flattening. In this Economics Weekly, we look at the different phases of the U.S. yield curve, what those phases have historically meant for equity market returns, where we are today, and what has historically come next.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.