S&P 500 Drops as 10-Year Treasury Yields Spike
April 25, 2018 8:41 amVideo
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S&P 500 is the biggest index in the world. It has a combined market value of more than $23 trillion. On the other hand, the Dow Jones Industrial Average has a market capitalization of more than $6 trillion while Germany’s DAX has a market cap of less than $1 trillion. As such, S&P is the most important index in the world because most companies in the index do business in all parts of the world.
In the past five years, the S&P has returned more than 60% to investors. Including dividends and share buybacks, the index has done much better.
This year however, the index has wiped out the previous gains. It has lost 1.34% this year. Several factors have contributed to the decline of the index. First, many investors have likely took their profits after the index rose by more than 20% last year. Second, the tax reform they were waiting for has already been signed to law. Third, there are signs that inflation is returning. This will necessitate further actions by the Fed. Fourth, Donald Trump has moved to implement tariffs, which will without a doubt affect the companies in the index.
In the past five days, the index has lost more than 2%. Most of these losses happened yesterday when the 10-year treasury yields reached 3%, the highest point since 2014. As treasury yields rise, most investors tend to move to treasuries, which may offer better yields.
The S&P 500 is currently trading at $2,635, which is lower than a major support level formed a few days ago. At this point, as the yields rise and as the yield curve flattens, there is a likelihood that the index will continue moving lower. Traders should watch for the pair to potentially drop below $2500.
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