Global stock indexes sit just 2% below their all-time highs despite a third quarter marked by a Treasury yield spike, a rare currency intervention and a surge in oil. Bonds, not equities, drove the turmoil, while S&P 500 earnings kept powering stocks higher.
Global equities have shrugged off a quarter defined by surging bond yields, a coordinated currency intervention and a jump in oil prices. The most widely tracked world indexes are just 2% off their all-time highs and up more than 12% for the year, after adding $3 trillion in value during the quarter.
Treasury yields hit pre-crash levels
Bonds, rather than stocks, have caused the worry. In the $29-trillion US Treasury market, the 10-year yield has soared past 5%, its highest level since just before the 2007 financial crash. Yields in Japan have climbed to multi-decade highs, while Germany, France and Britain have all hit 17-to-19-year peaks.
AXA's chief economist Gilles Moec said the current climb differs from prior spikes above 5% in the 1990s and before the financial crisis, framing it as the start of a new, structurally higher trend rather than a temporary swing.
Stocks ride an unprecedented earnings boom
South Korea's KOSPI index, whose chipmakers have driven AI-related gains, has pulled back almost 20% this quarter — its worst since the COVID-19 pandemic — even though it remains twice as valuable as it was a year earlier. But elsewhere, Pictet Asset Management's Arun Sai said world stocks are riding a "truly unprecedented" earnings rise, with S&P 500 earnings expected to jump at least 30% this year.
Currencies and oil swing on the yield surge
Japan and the US carried out a rare coordinated intervention in late July to stop the yen's slide toward near 40-year lows. The dollar has fallen 3% against the yen this quarter, yet the Treasury yield surge has since pushed it higher against the Swiss franc, euro and Mexican peso.
Oil has moved just as sharply: Brent crude's 40% quarterly rise leaves it up 70% for the year, its second-biggest quarterly jump since Q2 2020, when the pandemic first shut down the global economy.
Elections and yields loom over the final quarter
Conflicts in the Middle East and Ukraine continue, and Brazil holds the first round of its presidential election this weekend. US midterm elections in early November loom larger still, with polls showing President Donald Trump's Republican party could lose the House of Representatives and possibly the Senate.
Gramercy's Kathryn Exum said the question of whether the bond market turmoil breaks stocks now hinges on whether 10-year Treasury yields settle at levels a little higher than where they currently sit.
Source: Investing.com
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