① As the January market comes to an end this week, for many Wall Street investors, this year's market situation has always been a mystery that is difficult to unravel. That is why even though the overall yield of US bonds rose in January, US stocks can still perform so well The answer given by Goldman Sachs stock strategists led by David Kostin seems simple - just because the US economy is too good.
As the January market comes to an end this week, for many Wall Street investors, there has always been a mystery in this year's market situation that is difficult to unravel - why can US stocks still perform so well despite the overall increase in US bond yields in January (with cooling expectations of interest rate cuts)?
The answer given by Goldman Sachs stock strategists led by David Kostin seems simple - just because the US economy is too good.
Goldman Sachs Group strategists said that the strong economic outlook is helping the US stock market resist the rise in treasury bond bond yields. Of course, if factors such as tight monetary policy continue to push up yields too quickly, this situation may still change.
Goldman Sachs pointed out in its report that since long-term US Treasury yields began to rise in July last year, the S&P 500 index and 10-year US Treasury yields have actually been negatively correlated.
During this period, the S&P 500 index experienced a significant sell-off as US bond yields rose to a 16-year high in October last year, making the attractiveness of stocks relatively lower. It was not until the last few months of last year that the yield, which was opposite to bond prices, ultimately fell, and the US stock market quickly rebounded.
However, in the past month, the aforementioned market trends from last year no longer seem to have "worked"
As shown in the above figure, even though the 10-year US Treasury yield has risen by nearly 30 basis points, breaking through 4.1% at one point, the US stock market has still reached a historic high since January.
Is the US economy changing the correlation between stocks and bonds?
Goldman Sachs strategists believe that one of the reasons for the strong performance of the stock market is that the outlook for the US economy is constantly improving.
Their data shows that since 1990, when the US Treasury yield curve has steepened, the median monthly return on the S&P 500 index has been 1.3%.
Goldman Sachs strategists point out that when economic growth expectations improve rather than weaken, regardless of whether the yield curve becomes steeper or flatter, stock market returns will significantly increase.
They wrote, "As investors' concerns about the possibility of the Federal Reserve tightening monetary policy decrease, economic growth expectations should become a more important driving factor for the current market, thereby reducing the negative correlation between US stock and bond yields this year."
Goldman Sachs recently released another report stating, "We expect the growth rate of US GDP in 2024 to be much stronger than market consensus, and the risk of an economic recession is expected to be much lower."
Goldman Sachs expects the S&P 500 index to rise to 5100 points by the end of 2024, up more than 4% from last Friday's closing price.
However, Goldman Sachs strategists also mentioned that "if the interest rate rises sharply from the current level due to changes in the Federal Reserve policy or the balance between supply and demand of treasury bond bonds, the stock market will probably be in trouble. In addition, if the rate of rise of the yield of US bonds exceeds the recent level, regardless of the reason, the stock market will also face pressure."