The sharp climb in US Treasury yields so far this year has sent a ripple through equity markets, especially among interest-rate sensitive sectors such as real estate and technology. On the opposite, value stocks are outperforming growth ones -which is in line with what one would expect when yields rise. On the bright side of things, the healthy economic environment should support corporate earnings and prevent large equity losses this year.
The main performance driver in 2022 is likely to be interest rates. Whereas 4 hikes are fully priced by market participants as far as the U.S.A are concerned, the impact of the quantitative tightening is not. If BCA Research is right and that the 10-year Treasury yield finishes the year around 2.25%, then equities could easily lose another 10% from current level.
Higher rates will also impact other parts of the economy. The most indebted corporates may face issues rolling over their debt, real estate prices are likely to cool down and gold, which does not bring any income, may start underperforming.
Read more in this month's memo for the team's full analysis and recommendations.