Key Levels On Interest Rates

by Geoff Garbacz | 09/11/2019 9:19 AM
Key Levels On Interest Rates
Since the beginning of 2018, the  bond market and interest rates have moved the stock market. Recent action has been no exception. We thought it made sense to review key levels on the 10 year Treasury Bond starting in 2018.

1.Stocks got off to a strong start in 2018 gaining 7.45% before starting corrective action. The 10 year Treasury Bond yield rose from 2.40% to 2.66% and that is when stocks cracked.Rates hit a high in mid February of 2.94% before backing off into the 2.80% by mid March. Stocks fell 10.16% into mid February. RATES RISE, STOCKS FALL.

2.Bonds stayed in this area until the 10 year Treasury Bond moved from 2.80% to 3.10% in May. From there the yield came back to 2.80%. Rates stayed between 2.80% and 3.00% until September. Stocks traded in a range through May then moved higher until a peak on September 20th. The gain was 11.45%. Then began the nasty fourth quarter correction. RATE STEADY, STOCKS RISE.

3.Rates on the 10 year Treasury Bond moved up to 3.20% by October 5th. Rates were at 2.80% in late August before the move began. With this rate increase, stocks tumbled and then rated came back to 2.80% by December. RATES RISE, STOCKS FALL.

4.The next rate move in December took rates from 2.80% to 2.55% by the beginning of this year. With this move, stocks actually sold off hard dropping -11.32% into late December. RATES FALL. STOCKS FALL.

5.Rates stayed around 2.60% until the end of April then rates fell from 2.60% to 2.10% by June. The S&P 500 fell by -5.99% in May. RATES FALL. STOCKS FALL.

6.Rates held at 2.10% until then end of July then fell from 2.10% to 1.40% this past August. Again stocks fell by -4.56%. RATES FALL. STOCK FALL.

7.Now rates are started to rise with a move from 1.40% to 1.75% this morning. RATES RISE. STOCKS RISE. The S&P 500 is up 3.17%.

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What is crazy about the above is that both rate increases and decreases can lead to stock increases or decreases. It is all about perception.The market is deciding when rate changes are good or bad for stocks. Currently, the move back up is considered good. So here are the key levels to pay attention to 1.40%, 2.10%, 2.40%, 2.60%, 2.80% and 3.10%.

If the current action plays into past moves, then stocks should be in good shape until 2.10%. Then we need to reevaluate.

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