S&P 500 Holds Near Record Highs Despite Rate Hikes
US equities remain within 2% of all-time highs as firms absorb rising borrowing costs and energy expenses without significant economic slowdown.
Key points
- The S&P 500 remains within 2.07% of its all-time high despite rising yields and oil prices.
- The two-year US Treasury yield has climbed approximately 135 basis points from its February low.
- US households spend a historically low percentage of their disposable income on gasoline.
The S&P 500 index sits just 2.07 percent below its August record high. This resilience persists despite a 60 basis point jump in two-year Treasury yields. The market has absorbed these shifts without showing signs of stress.
Investors have faced a surge in oil prices and tighter monetary policy. Yet, stock prices have remained firm against these headwinds. The underlying economic fundamentals have proven stronger than bearish forecasts predicted.
Corporate Earnings Offset Rate Pressures
Strong nominal growth has supported equity valuations during this period. Corporate earnings have remained robust even as borrowing costs increased. This combination has neutralized the negative impact of higher rates.
Credit spreads have stayed contained despite the reprice in bond yields. Economic activity continues to expand across major sectors. Healthy consumer and corporate balance sheets limit the risk of a sharp downturn.
Energy Costs Show Limited Economic Impact
Oil prices have surged by more than twenty dollars per barrel. However, the global economy is less energy intensive than in previous decades. This structural shift reduces the direct hit to household budgets.
US consumers spend a historic low share of income on gasoline. Supply disruptions from the conflict may prove temporary. This context suggests that sustained high prices are the primary risk to watch.
Market Absorbs Policy Changes
The two-year Treasury yield has risen from 3.38 percent to 4.73 percent. This reprice happened after markets initially priced in rate cuts. Financial markets have effectively done much of the tightening work.
Analysis from invesco.com suggests much of the concern is already priced in. Further rate hikes may cause less damage than currently feared. The economy remains resilient against these monetary shifts.
