S&P 500 Index to end the year at 4200 as higher yields set to cap the rally – CE

Since eclipsing the symbolic 4,000 level a couple of weeks ago, the benchmark S&P 500 Index has gained a further ~3% this month, and is now nearly 10% higher since the start of the year. At the same time, the bond market has taken something of a break: the 10-year Treasury yield has been broadly stable since mid-March. Nonetheless, economists at Capital Economics are sticking, for now, to their end-2021 forecast of 4,200 for the S&P 500 Index because they anticipate that the sell-off in the bond market will resume in due course and that this will slow down stock market gains.

Higher yields will slow the stock market’s rally

“The stabilisation in the bond market has probably helped add fuel to the stock market rally. But we expect the sell-off in bonds to resume before long. And we think this will hold back further gains in the stock market as well.”

“We expect further rises in bond yields to be mostly driven by higher real yields. With a rapid economic recovery on the way, and the Fed committed to keeping policy accommodative until inflation is above target over a sustained period, we think there is scope for long-dated real yields to rise further as investors increasingly factor in that the Fed will have to tighten the real stance of monetary policy more further down the line.”

“Admittedly, a good part of the positive economic news – such as fiscal stimulus and the effective vaccine rollout – looks to be now discounted in financial markets. But there is still considerable uncertainty about the pace of reopening, and we think that the economic recovery may still prove even more rapid than many are anticipating. So we suspect the rise in real yields still has room to run, capping further gains in stock prices.”


Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news

Latest Forex News

Latest Forex News

Editors’ Picks

EUR/USD: Teases 21-DMA support inside falling channel

EUR/USD edges lower around short-term support after five-day losing streak. EUR/USD holds lower ground near 1.1835, around the seven-day bottom, amid Friday’s initial Asian session.


GBP/USD: Hangs in the balance of NFP, breakout imminent

Cable rose as high as $1.3949 after the BoE decision but was unable to break the resistance needed for an upside continuation in the daily time frame. Cable rose as high as $1.3949 after the BoE decision but was unable to break the resistance needed for an upside continuation in the daily time frame. 


Gold on the brink of a significant breakout around NFP

Gold is now in the balance of the NFP numbers on Friday. The market is taking into consideration a more hawkish tilt at the Fed. Technically, the price is at a critical juncture and a breakout could be imminent one way or the other.

Gold News

ICON looks extremely bullish in the long-term as ICX price targets $3

A brief technical and on-chain analysis on ICON price. Here, FXStreet's analysts evaluate where ICX could be heading next as it looks ready to continue surging.

Read more

US July NFP: Analyzing major pairs' reaction to NFP surprises

NFPs in US is expected to rise by 870,000 in July. There is a strong correlation between surprising NFP prints and major pairs' immediate movements. Investors are likely to react to a disappointing NFP more strongly than a positive reading.    

Read more