Is a 5% Treasury Yield a Threat to Stocks? Cathie Wood Says No
ARK Invest CEO Cathie Wood says shares can maintain rising with the 10-year Treasury yield above 5%. She argues that greater charges present a market working with out heavy Fed management.
Her feedback adopted a chart from ARK’s Frank Downing that plots yields and the S&P 500 since 1980. It exhibits the 10-year yield at 5.18% and the index close to 7,743.
Why Cathie Wood Welcomes Higher Rates
Wood wrote on X that the Fed, not the market, was in cost when charges sat between 0.5% and a couple of%. Today, she says, the market is working once more.
She additionally pointed to 2017. That 12 months, the Fed raised charges, but long-duration shares had a robust run, in accordance to Wood.
Her September 22 investor letter makes a longer case. Drawing on 230 years of knowledge, Wood argues that the slide in charges from 1981 to 2021 was the outlier. Before the Great Depression, yields of 5% to 6% had been regular.
Is the 10-Year Treasury Yield a Threat to Stocks?
Wood expects long-term yields to method 5% to 6% as expertise lifts productiveness and development. She additionally sees short-term charges climbing to 6% to 8% alongside nominal development.
Meanwhile, she says real-time knowledge exhibits cooler inflation than official figures recommend. For instance, Truflation, an impartial every day inflation tracker, put July headline inflation at 2.5%. By comparability, the federal government’s Personal Consumption Expenditures (PCE) value index confirmed 3.7%.
As a end result, Wood suggests balanced portfolios might maintain extra shares than the traditional 60/40 cut up. Goldman Sachs’ Anshul Sehgal has made a comparable name, favoring AI over bonds.
Still, not everybody shares her calm. Janus Henderson macro head Michael Contopoulos warned that the market is nearing its top as Fed tightening lifts yields.
Traders are additionally weighing a potential October Fed rate hike, which might hit danger belongings, together with Bitcoin.
Whether earnings can develop quicker than borrowing prices might determine who is true. For now, Wood is betting that greater charges and better inventory costs can coexist.
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