With a short term inflation spike about to land on markets BofA takes a look at the critical bond yield levels that would upset stocks:
No more TINA
The long-standing bullish mantra for stocks has been “There is no alternative” or TINA. Especially for income investors, given that the S&P 500 dividend yield has been within spitting (100bp) distance of bond yields for 104 of the last 120 months. Today over 60% of S&P 500 stocks pay a dividend yield that is above the 10-yr yield. But our rates strategists’ forecast for a 10-yr yield of 1.75% by year-end renders TINA less compelling. The opportunities for higher dividend yielders would drop well below 50% (Exhibit 1) and the S&P 500 yield would fail to clear bond yields. But rising rates alone aren’t bad for stocks: stocks posted positive returns 13 of the last 15 rising rate cycles.
