The US 10-year Treasury bond (US10Y) is trading at 1.7%, down more than 50 basis points since the end of May.
Wells Fargo analysts expect this downward trend to continue in the current macroeconomic environment, which would be positive for stocks.
There were four types bull cycles and five bear cycles since the end of 2022. During the bear cycles, the S&P 500 (SP500) had a cumulative return of 34%, and in bull cycles the cumulative return was 2%, said Christopher P. Harvey, an analyst at Wells Fargo, in a note.
Small cap indices (IWM) (SP600) performed similarly.
These were the rate cut cycles since the end of 2022:
- From December 28, 2022 to January 19, 2022: change in the real rate of the US10Y bond: -45 basis points; total return of the S&P 500 index: 3.2%
- March 8, 2023 to April 6, 2023: Change in the US10Y bond real rate: -61 basis points; S&P 500 total return: 3%
- July 7, 2023 – July 24, 2023: Change in the US10Y bond real rate: -33 basis points; S&P 500 total return: 3.6%
- From October 31, 2023 to December 27, 2023: change in the real rate of the US10Y bond: -88 basis points; total return of the S&P 500 index: 14.3%
- From May 29, 2024 to August 29, 2024: Change in the real rate of the US10Y bond: -57 basis points; total return of the S&P 500 index: 6.7%
These were the rate hike cycles since the end of 2022:
- February 2, 2023 – March 8, 2023: Change in the US10Y bond real rate: 51 basis points; S&P 500 total return: -4.3%
- April 6, 2023 – July 7, 2023: Change in the US10Y bond real rate: 75 basis points; S&P 500 total return: 7.6%
- July 24, 2023 – October 6, 2023: Change in the US10Y bond real rate: 101 basis points; S&P 500 total return: 5.1%
- From January 31, 2024 to April 24, 2024: Change in the real rate of the US10Y bond: 61 basis points; total return of the S&P 500 index: 4.5%
