A Factor That Has Historically Whacked Stock Prices Is Rearing Its Ugly Head
Lookout below, investors.

Investors should respect bond yield creep. 

With the market growing concerned about rising inflation and the subsequent response from the Federal Reserve, 10-year yields have crept closer to 3%. The last time the 10-year yield breached the psychologically important level was in Jan. 2014.

As of 12:18 p.m. ET, the 10-year yield was 2.91%. It hit a four-year high of 2.95% on Wednesday. 

If history is any indication (see below), the market will not like it once yields break through the 3% level. 

"While average historical stock returns remain positive until interest rates cross above 6%, the probability of losing money begins to increase as interest rates cross above 3%," points out Bank of America Merrill Lynch strategists. "And recall that stocks were most negatively correlated with Treasury yields from the 1960s through the 1990s, when rates ranged from 4% to 16%."

On the positive side, BofA's analysis doesn't reveal a "magic number" or level at which interest rates noticeably pound stock prices. Somewhat reassuring. 

Nevertheless, imagine 10-year yields at 16% millennial stock traders?

Source: BofA
Source: BofA

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