What a wild week it’s been for the stock markets! Stocks have seen big moves both ways this week. The S&P 500 (SPY) has surged 1.3% today as bond yields have risen. The ten-year Treasury (IEF) yield has risen by five basis points to 1.57%. Whereas yields are still extremely low, their rise has helped beaten-up bank stocks recover.
Currently, the S&P 500’s dividend yield is higher than the ten-year Treasury yield, making the stock market more attractive to yield-hungry investors, despite higher valuation multiples.
July’s retail numbers came in yesterday. Numbers suggest consumer sentiment is high despite gloomy expectations. US retail sales rose 0.7% in July, compared with 0.3% in June. Whereas the US Treasury yield curve inverted earlier this week and might be signaling an impending recession, we think that could be a false alarm.
Apple stock rises after announcement
Apple (AAPL) gained over 2.1% in the first couple of hours of trading today, boosting the Nasdaq Composite by 1.5%. The stock rose after the company announced it was on target to deliver $350 billion to the US economy by 2023. The news implied the company was in good shape despite its teetering iPhone business.
Although the S&P 500 has risen today, it is down 1.1% this week. Stock markets’ volatility is likely to persist. The biggest uncertainty for the markets is the ongoing US-China trade war. Prolonged trade tensions could cause a recession. While the US has taken a step back and delayed tariffs on some Chinese goods, a trade deal seems nowhere close.
Loose monetary policy could come to stock markets’ aid again
The main factor driving stock markets this year has not been earnings growth, but rather loose monetary policy. The S&P 500 has risen 15% this year, mainly because of the Fed’s dovishness.
To calm markets down, the Fed announced last December that it wouldn’t be hiking rates. That news triggered a huge stock market rally in late December and January. Then, rumors that the Fed would cut rates caused another rally in June. The Fed cut rates in July, and we could see another rate cut next month. Loose monetary policy could save stock markets again, but it may lower yields.