US Treasury bond yields continued to rise on Wednesday, with the 10-year yield closing at its highest level since July.
Closing at 4.24% for the day, it marked an increase from 4.204% on Tuesday and more than 4 from the previous week. This surge represented the highest settlement yield recorded since July 25.
The upward trend in yields, indicative of a decrease in bond prices, has persisted for over a month, accelerating notably on Monday and maintaining gradual gains thereafter.
The ongoing climb in Treasury yields is attributed to positive economic indicators, implying a more gradual approach by the Federal Reserve in reducing interest rates compared to market expectations a few months back for a much faster pace. According to the Atlanta Fed’s GDP model, the economy is estimated to have grown at a 3.4% rate in the third quarter of this year.
Goldman Sachs’ analysis forecasts that the S&P 500 Index is likely to deliver an annualized nominal total return of merely 3% over the next decade, a stark contrast to the 13% seen in the previous decade and an 11% long-term average. This projection could mark the beginning of the end of big gains in S&P 500.
Goldman Sachs further predicts a 72% probability of the benchmark index to underperform US Treasury bonds, along with a 33% chance of lagging inflation rates by 2034. The significant 23% increase witnessed this year has been chiefly driven by select major technology stocks. While the Goldman strategists anticipate a broadening of returns and the equal-weighted S&P 500 surpassing the market cap-weighted benchmark in the upcoming decade, if the surge continues to be concentrated, projected returns for the S&P 500 are anticipated to be around 7%, which is still below historical averages.
