Rising bond yields no problem for equities - UBS
STOXX 600 up 0.5%
Autos fall, tech stocks rise
UK inflation surprises to upside
Trump picks, geopolitics in focus
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RISING BOND YIELDS NO PROBLEM FOR EQUITIES - UBS
U.S. Treasury yields have been steadily rising since early October and now present a tantalising alternative to stocks for investors. But equities have also held up pretty well.
The S&P 500 .SPX is just 1.1% down from a week ago and the STOXX 600 .STOXX is barely changed since then. 10-year Treasury notes yield nearly 4.5%, compared with a dividend yield of around 1.5% for the S&P 500, according to LSEG/Datastream data.
UBS wealth management CIO Mark Haefele sees several reasons why stocks can withstand the recent moves in yields. Firstly, he says he believes much of the rise in yields is based on an expectation for rising growth, and not just inflation, following Donald Trump’s election victory.
The second is the speed of the move in yields. UBS estimates that monthly moves in the real 10-year yield - which factors in the rate of inflation - in excess of 40 basis points have the potential to add to equity volatility.
"The recent moves have fallen slightly short of this threshold, with a rise of 36 bps in October," says Haefele.
Finally, enthusiasm for AI has made higher yields a more digestible reality for markets.
"As optimism has built over the commercialisation of AI, markets have been revising up expectations for cash flows—more than offsetting a slightly less favourable discount rate."
UBS expects the S&P 500 to reach 6,600 by the end of 2025, about 12% up from where it is right now.
"...in Europe, we like select ideas in small- and mid-cap stocks and Swiss high-quality dividend payers."
(Lucy Raitano)
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FOR WEDNESDAY'S OTHER LIVE MARKETS POSTS:
TECH STOCKS LIFT STOXX AS REAL ESTATE DRAGS CLICK HERE
BRITISH INFLATION SET TO DOMINATE BEFORE NVIDIA CLICK HERE
FTSE FUTURES FALL BEHIND AFTER INFLATION RISES CLICK HERE
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