economy
BCA says the stock and bond markets 'are on a collision course.' And bonds may win
Bond investors may come out on top as equity and Treasury markets head for a collision.
TL;DR
- BCA Research suggests a 'collision course' between stock and bond markets, with bonds potentially having an edge.
- The 2-year U.S. Treasury yield exceeding the Fed funds rate historically precedes Fed rate hikes.
- Inflation is reaccelerating, with the consumer price index rising 3.8% annually in April.
- Market internals for equities appear weak due to narrow leadership.
- The 30-year U.S. Treasury yield reached a near 19-year high, increasing concerns about monetary tightening.
- Fed meeting minutes indicated a need for rate hikes if inflation remains elevated, partly due to the Middle East conflict.
- A stock market downturn could lead to disinflationary pressure and potentially lower bond yields.
- If the Fed delays rate hikes while inflation is rising and growth is robust, it may have to raise rates more significantly later, which is bearish for both stocks and bonds.