We’ve seen this before. At least if the past few days are any indication. As bond yields rise, stocks plummet. Even though mortgage rates have remained relatively calm there is the knowing feeling the Fed will in fact raise rates and any upward move in Treasury or mortgage bond yields will spook the stocks bonds fallmarkets once again.

Fed Chair Yellen didn’t help very much with comments this morning regarding stocks and saying she thought equity valuations “are generally quite high.”*

After falling by triple digits yesterday, the Dow fell another 150 basis points before recovering some of the early losses. What we might be getting into is what we witnessed for much of the second half of 2013 and the first half of 2014. Then Fed Chair Bernanke stated QEIII will soon end and rates shot upward and stocks fell. This tandem path was quite regular. As rates appeared to be going higher stocks fell. Then, when QEIII finally halted in Q4 2014, the sky didn’t fall after all and stocks and bonds returned to their more traditional reaction.

Now however, stocks have been unable to hold onto any gains and appear to be stuck in a relatively tight range while at the same time interest rates gradually rise. It’s very possible both equities and bond yields will follow the 2013-2014 run as yields begin to rise and stocks lose value. That doesn’t provide investors with very much optimism for future profits. Real estate? That’s a different story as demand for new and existing homes is still solid and rental rates continuing their upward trend across the country. Good news for real estate investors. Not so good news for stocks or Treasuries.

 

*www.cnbc.com  May 06, 2015