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Peter Davis

An writer at FOMOdrive

  • Jun 20, 2023
  • 2 min read

Yields on bonds and stocks have caught up - what does this threaten the market with?

The yield on bonds was equal to the yield on stocks.

A heightened risk of investment could lead to a decrease in the stock market's appeal.

The US Federal Reserve left the rate at 5-5.25% last week, and indicated that it may increase in the future. It is unlikely that the rate will be reduced before 2024.

The yield on three-month Treasury bonds rose to 5.3%, which is the same return that is predicted for the S&P 500 index over a 12-month period.

According to the Financial Times, the same yield on high-risk stocks and safer bonds could be a sign that the bullish phase in the stock market is coming to an end, as it reduces investors' interest in stock assets.

The management company Pictet Asset Management has noted that, for the first time in history, the yield of cash, bonds and stocks has become the same. As a result, they recommend buying bonds, as they are more attractive when taking into account risks.

Candriam Investment Company draws attention to the vulnerability of the American stock market, as two-thirds of the growth of the S&P 500 index was accounted for by only five to seven stocks in its composition.

The capitalization of the five largest high-tech companies - Apple, Microsoft, Alphabet, Amazon and NVIDIA - accounted for 25% of the total capitalization of the S&P 500 index at the end of May.

Since the 1960s, this is the first time that the top 5 companies in the index have accounted for more than 25%. Additionally, never before have these five companies been from the same industry.

The Carson Group is confident that the S&P 500 will reach new heights by the end of the year, while Bank of America is uncertain if the recent surge in stocks is the start of a "new bull market".

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