Why Rising 10-Year Treasury Yields Are 'Not Bearish' For S&P 500

Rising interest rates are typically viewed as bad news for stock prices. Conventional wisdom suggests higher interest rates increase the cost of capital for companies borrowing money, potentially stifling economic growth.

However, Bank of America analyst Stephen Suttmeier said Tuesday that upticks in 10-year U.S.Treasury yields haven’t been bearish at all for the SPDR S&P 500 ETF Trust SPY for at least the past 15-plus years.

The Numbers: Going back to 2005, Suttmeier found the S&P 500 traded higher 69.3% of the time on days the 10-Year U.S. Treasury yield rose at least 0.1% with an average return of 1.18%. Those days also produced a positive breadth among New York Stock Exchange-traded stocks 73.3% of the time. Market breadth refers to the percentage of stocks that are moving in the same direction as the overall market.

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Conversely, on days the 10-Year U.S. Treasury yield dropped at least 0.1%, the S&P 500 traded higher just 20% of the time for an average return of -1.9%.

For now, Suttmeier said he believes the S&P 500 remains in a corrective phase that began in early September.

Since late September, rising 10-Year Treasury yields have coincided with improving market breadth. While the S&P 500 has been generating lower highs and lower lows in recent weeks, Suttmeier said the index’s rising 200-day moving average suggests the bearish trading action is merely a correction within a longer-term uptrend at this point.

Levels To Watch: Suttmeier said investors looking for a bullish breakout from the correction should watch the 50-day moving average and the Sept. 28 downside gap zone of around 4,419 to 4,437 as a key technical resistance zone.

“While this resistance zone is intact, the SPX remains within its (rotational) corrective phase with supports at 4,306-4,288 (corrective lows), 4,257-4,233 (summer breakout/retest levels), 4,168-4,164 (June lows) and 4,158 (rising 200-day MA),” Suttmeier said.

Benzinga’s Take: Rising interest rates and elevated inflammation levels are particularly hard on high-growth tech stocks that rely on borrowing money to fund growth and are valued based on future earnings. However, interest rates typically rise during periods of strong economic growth, and they can be reassuring for investors concerned about the health of the economy.

Photo: U.S. Treasury