Goldman sees a positive yield curve by Q3; what does that mean for stocks?

seekingalpha01-29

The 2s10s Treasury yield curve will continue its recent steepening and should leave inversion territory around the third quarter, according to Goldman Sachs. "Since peak inversion in July 2023, the 2-...

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Returns have been similar during bull steepening (when short-term rates fall faster than long term) or bear steepening. \"In contrast, returns have been substantially stronger in environments of improving economic growth expectations, as signaled by the outperformance of cyclical industries relative to defensive industries, than in environments where growth expectations are weakening,\" Kostin said. \"In other words, the reason the yield curve shifts is far more important for stocks than the shape of the curve itself.\" Looking to sectors and asset classes, during bear steepening, Financials (XLF), Value (IVV) (IWD) and Small-Caps (IWM) (IJS) do the best. In bull steepening, Healthcare (XLV) and strong profit-margin stocks outperform. Real Estate (XLRE) and Utilities (XLU) have the worst performance in either scenario. \"S&P 500 returns have typically been positive during the 6 months before yield curve normalization, returning a median of +3% and rising in 9 of 15 episodes (since 1962),\" Kostin said. \"Equities have continued to rise after yield curve un-inversion if the US economy did not enter a recession soon thereafter.\" \"Our economists see just 15% odds of a 2024 recession.\" \"The negative recent correlation between US Treasury yields and equities has also contributed to investor anxiety that a continued rise in rates will drive an equity selloff,\" he added. \"The correlation of S&P 500 returns and the 10-year yield has remained negative since the yield curve steepening began last July.\" \"From July to October 2023, the S&P 500 declined by 10% as 10-year yields surged from 3.9% to 5.0%. Equities then rallied by 16% as the Treasury yield retreated to 3.8% by December 2023. However, the S&P 500 has returned 3% YTD despite a concurrent 27 bp increase in the 10-year yield to 4.2%.\" \"An improving economic growth outlook is one reason equities have recently been resilient despite rising yields,\" Kostin said.   More on stocks and bonds  PBOC Cuts Reserve Requirements, But USD Pullback May Offer New Buying Opportunity In North America SPY: Black Swan Hiding In Plain Sight BOJ Stands Pat, Exit Draws Closer; HK Liquidity Is Squeezed, Easing Pressure On The Yuan S&P 500 posts three-week win streak as Wall Street looks to Fed meet for rate cut clues Catalyst watch: Apple earnings, Boeing on the hot seat, FOMC meeting and Amer Sports IPO","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.23.1","shortVersion":"4.23.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2407683098"}