But stock bulls can take comfort in the fact that inflation expectations have cooled in recent months. Rates on 10-year breakevens are currently trading below 2.5%, down from a peak above 2.75% in November.
Meanwhile, should the Fed hike rates back to 2%, so-called U.S. real yields—which strip out the effects of inflation—will still be paltry, according to iCapital’s Anastasia Amoroso. That should keep money flowing to technology and growth stocks, given that bonds will likely still offer a negative rate of return. Currently, 10-year real rates clock in near minus 0.71%.
“Despite all the uncertainty about the Fed—the Fed itself doesn’t know how many rate hikes it’s going to deliver—if you take a step back and look at the level of real interest rates, you’re still looking at a rate that’s less than zero,” said Amoroso, chief investment strategist at iCapital. “That’s going to continue to support risk appetite.”
—With assistance from Vildana Hajric, Edward Bolingbroke and Benjamin Purvis.
This article was provided by Bloomberg News.