Let’s Bust Some Popular Market Myths

The latest Weekly Market Commentary  used our trademark data-driven approach to bust some popular market myths. Two that are getting a lot of attention are the yield curve and rising interest rates.

The yield curve—the difference between 2-year and 10-year Treasury yields—has historically been an effective recession signal. The curve has flattened this year, causing some to fear an impending recession. However, LPL Research Chief Investment Strategist John Lynch noted, “Though significant, it’s important to keep in mind that when looking back at the previous five recessions, once the yield curve hit 0.5%, it usually took a year or more before the curve inverted. Once it inverted, it took nearly two years on average until a recession started. Along the way, the S&P 500 Index produced 20%-plus returns.” We highlight the data here in today’s Chart of the Day.

Many think rising interest rates are bad for stocks, but the data show otherwise. Stocks have historically done well when interest rates rise, despite investor anxiety as the 10-year Treasury yield approaches 3%. In fact, counting the periods of higher rates (based on the 10-year Treasury yield) over the past 50 years, stocks have gained ground in 19 of 23 cases. More recent periods have produced even better performance, with stocks moving higher during each of the last 11 rising-rate periods going back to 1996.

To have a look at the other myths we bust, check out our latest Weekly Market Commentary.

 

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