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Bond yield shadow overhanging stock markets

March 1, 2023

There is no chink of light yet in bond markets to offer encouragement for shares.

Nothing reassuring about the trend in UK 10yr yields either.

Strategy

A new high by US 10 year bond yields, which is looking more likely than not, would probably freak out stock markets. We could easily see something similar in the UK. There has never been an interest rate shock like it

To make things more difficult, money markets are now seeing a peak rate of 5.43pc by September with little to no chance of the Federal Reserve cutting rates this year. (FEDWATCH)

Reuters, 1 March 2023

Companies are not standing idly by in this tougher environment

After seeing their shares hammered Twilio’s management has adopted a dramatically changed strategy – profitable growth v growth at all costs. This is a major pivot and should produce rewards in time.

It is a common pattern. Companies grow like topsy in a world where investors are as excited as they are. Then everybody gets a huge reality check. Companies bite the bullet of change and nobody can accuse Twilio of not doing that and out of this emerges a new battle hardened business able to grow more slowly but more sustainably. It is a pattern being repeated across the US high tech sector from mega caps to out and out blue sky concept growth companies.

In the early 2000s when something similar happened many companies ceased to exist. This time the corporate sector and the underlying fundamentals are stronger so I expect many companies to survive and prosper but right now it is tough and may yet get tougher.

It is worth recalling that companies can recover from what seem like the most amazing setbacks but it does take time.

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