Why (US) stocks can keep defying yields
SPY•Edmond de Rothschild strategists said US stocks could remain resilient as rising yields accompany economic expansion and higher corporate profits. The S&P 500 is up 13% this year, compared with a 7% rise for Europe’s STOXX 600.
1. Growth and rising yields
Edmond de Rothschild strategists said periods of rate hikes are mostly moments of economic expansion and rising corporate profits, which can drive equity markets higher. They wrote that cyclical and growth stocks, particularly in materials, industrials and technology, tend to outperform in that context.
2. US performance
The strategists said the S&P 500 is likely to continue outperforming other markets because of its greater exposure to growth sectors, especially technology. The index is up 13% this year, while Europe’s STOXX 600 has risen 7%; the Nasdaq hit a record high late last week.
3. Europe’s inflation concerns
The strategists said inflation in Europe is thought to be primarily about energy prices rather than growth, and worries about the deficit could continue to push up French yields.
