On Friday, 2020/7/8, the S&P 500 closed down -0.083% while the US 10-year treasury rose 3.09%. This means the S&P 500 stood strong against the rise of treasury yield.
Why So?
Based on pretty much all valuation techniques for almost every asset class, the risk free rate is what valuation is based upon. The higher the risk free rate the higher the future value of money is, which also mean the higher the risk free rate the lower the current the value of money.
Or, when the risk free rate is high, I would expect my stock to earn more money than bonds which is assumed to earn at a risk free rate. If my stock is not going to make more money than bonds, the current stock price should drop to match the earning expectation of future earnings.
This is one reason why it is common seeing stock falls as yields rise.
Good Sign?
On Friday, 2020/7/8, the S&P 500 dropped while the US 10-year yield rose, this means the stock market would have risen more if the yield had stayed the same. This is one sign that the stock market would have already been adjucted to the 3% 10 year yield and is ready to face some more rate hikes.
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