Markets “In a Nutshell” for October 4, 2021
Investment Week at a Glance
Stocks finished lower for the week. The Dow Jones Industrial Average fell 1.40%, the S&P 500 was down 2.20%, and the NASDAQ fell 3.20%. Foreign stocks (MSCI EAFE) were also down, falling 2.60%. Bond prices were down for the week, with the 10-year U.S. Treasury ending the week at 1.47%. (Data source: Wall Street Journal)
September is historically the worst month of the year for stocks and this trend will likely continue unless we see a bigger pullback within the next 3 months. For the month of September, the S&P 500 was down 4.8%, which is just the second month this year we have seen a negative return. In addition, September has been the worst month since March of 2020, which was the height of the Pandemic worry for the stock market. Although the past month has been a bit bumpy for the market, equities are still up 74% over the past 18 months. Earnings are expected to continue their rise and push the market higher but many believe gains will be much more moderate than what we have seen since the market lows of early 2020. We are also expecting to see more volatility as we deal with rising rates and the ongoing debates in Congress on many packages that will affect the economy.
The market reacted negatively to rates continuing their rise as equity markets had a bit of a pullback. The 10-year Treasury yield has moved from 1.30% on September 15 to as high as 1.54% this past week. When we see sharp spikes in interest rate it is typical for equities to fall as an increase in yields means slower growth for most companies as borrowing money becomes more expensive. Another reason for the recent volatility is expectations that the Fed will begin its taper of asset purchases soon. Although the headlines show a lot of market worry, we are still just 4% off from all-time highs in the market once again. Another positive is although yields are rising they are still relatively low to the historical averages which are favorable to equities.
What was the average 10-year treasury yield from 2010-2019? (Scroll Down for Answer)
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4) 2.41%. Before the Pandemic, the 10-year treasury had never been below 1% and on March 9, 2020 it was as low as 0.54%.