Higher Bond Yields May Not Skewer Stocks; Some Traders See Long-Term Rates As Simply Returning to Normal In a Sign of a Strong Economy
STOCK INVESTORS are tearing out their hair for fear that surging Treasury-bond yields will torpedo the stock market.</br></br>But not Jim Paulsen. The chief investment strategist for Wells Capital Management, which oversees $175 billion, figures higher yields are just great for stocks.</br></br>"I've just got a sense of optimism about this thing," Mr. Paulsen says. "If you are a real stock bull, you've got to root for a higher bond yield."</br></br>That wasn't exactly how the market reacted Friday. Treasury-bond yields affect other interest rates across the economy, including those of fixed-rate mortgages and many corporate loans and bonds. Higher rates put a pinch on consumers and companies alike, and that squeezes profits. When the yield of the benchmark 10-year Treasury note jumped Friday to 4.965%, a level it hadn't seen since June 2002, stocks suffered: The Dow Jones Industrial Average fell 96.46 points, or 0.9%, to 11120.04.</br></br>The fear is that higher yields mark the end of the easy-money era that has been the stock market's prime driver since 2002. Consumers will find it more expensive to buy a home or to take out a home-equity loan and buy a new car. Businesses will find new investment more costly. Investors will have to think twice before tossing more borrowed money into the stock market -- they might even take some out. Bonds and money-market funds, with their higher new rates, will draw money away from stocks.