The relationship between bond yields and stocks prices has changed over time. So, how can we tell if the current era may be ending?
The different eras may be the result of the changing relationship between yields and the economic outlook. Stock returns typically move in sync with the outlook for economic growth because economic growth is reflected in corporate earnings, which are one of the most important drivers of stock market performance. However, bond yields have become increasingly cyclical over time. In the current era, the U.S. Treasury bond yield and the world’s leading economic indicators have moved in sync. Prior to the 1990s they moved in opposite directions. This phenomenon is seen with global growth and U.S. bond yields, as well as within Europe.