Stocks slide as bond yields continue rising

Stocks took a rare turn to the downside after solid gains earlier in the week.

The selling was rather broad as interest rates worldwide began to reach levels that investors might be minimizing risk by tracking from stocks into bonds, particularly the 10-year note which has been rising steadily since mid-September when the Federal Reserve announced the beginning of their asset sales as they seek to trim their balance sheet.

The 10-year settled at 2.44%, a seven-month high. As recently as September 8, prior to the most recent FOMC policy meeting, the yield was 2.06%, representing a 10-month low, dating back to November 8, 2016, on the eve of the national election which put Donald J. Trump into the office of President of the United States.

Thus, yields are testing the buoyancy of the stock market, especially those stocks which produce dividends. While many blue chip-type companies yield similarly to the 10-year, they also carry risk that the US economy may stall and send stocks lower, which would reduce the effective yield and possibly decimate profits.

As the Federal Reserve intends to normalize rates - with another rate hike widely assumed to be coming in December - stocks will naturally come under pressure, though it is far too soon to tell exactly what the Fed will do should the long-winded bull market from 2009 stall.

There is considerable debate over the general health of the US and global economies, which have been aided to a great extent by easy monetary policy and massive stealth purchases by the central banks of Europe and Japan.

A single day of declines should not be taken too seriously, as stock indices have been recently making new highs almost on a daily basis, but, that said, this does not seem to be a time in which investors should throw caution to the wind. As always, the Fed stands ready with fresh injections of fiat or policy adjustments to ameliorate any kind of market detour.

Bull markets do not last forever, however, and there are significant headwinds to growth without the aid of fresh central bank intervention.

At the Close, Wednesday, October 25, 2017:
Dow: 23,329.46, -112.30 (-0.48%)
NASDAQ: 6,563.89, -34.54 (-0.52%)
S&P 500: 2,557.15, -11.98 (-0.47%)
NYSE Composite: 12,336.64, -68.35 (-0.55%)