It’s always a good idea to keep an eye on the robots:
We are all bond traders now. Well, bond traders have always been bond traders, but even 18-year-old teenage equity and crypto “portfolio managers” now have to follow bond prices and yields more than any other market indicator for a sense of what happens next.
Why? Because as Goldman noted last week, the move higher in yields was so fast and so furious, that it virtually guarantees more pain in stocks. Recall that in his latest Weekly Kickstart, Goldman’s chief equity strategist (who does not actually trade) pointed to the rapid move higher in yields catalyzed by the latest FOMC statement, and which surged as high as 1.80% before settling around 1.73% today after ending 2021 at 1.52%, a 24 bps rise over just 5 days. This is material because as Goldman has repeatedly shown in the past, the speed of rate moves matters – even more than the actual move – for equity returns. To wit, “equities typically struggle when the 5-day or 1-month change in nominal or real rates is greater than 2 standard deviations. The magnitude of the recent yield backup qualifies as a 2+ standard deviation event in both cases.”
