After six straight weeks of weekly gains, the Dow Jones and the S&P 500 (SPY) fell on Monday. Treasury yields continued to climb. Markets should not express surprise at the higher debt yield. The 20+ Treasury Bond ETF (TLT) peaked at nearly $102 in September.
Bears took over TLT stock in the last two months, with TLT closing at $92.23.
High valuations among the widely traded technology semiconductor stocks did not help markets. Nvidia (NVDA) trades at a 67 times price-to-earnings ratio. Its forward P/E falls to 35.33. This is comparably lower than Apple’s (AAPL) current P/E of 36.01 times, albeit not by much. If traders panic and sell either stock, it could trigger a broader decline for the indices.
The increase in the 10-year yield suggests that the economy is growing faster than the Federal Reserve would like. In addition, the job market is strong. Boeing’s (BA) union workers negotiated a 35% wage hike over four years. Stellantis (STLA) also settled record contracts with its workers last year. So did Ford (F) and General Motors (GM).
In effect, strong wages could lead to sticky inflation. Raising rates is the Fed’s only weapon. However, the bank said that it would not do that, so it may leave rates at current levels.
For now, the Fed Fund is not high enough to hurt stock valuations. However, investors should watch TLT and IEF bond prices regularly.