The View | Why the US stock market has become a drag on bullish sentiment

Amid all the talk of a bear market in US Treasury bonds as the benchmark 10-year yield settles above the 3 per cent mark for the first time in four years, America’s previously buoyant stock market is emerging as the main source of anxiety. 

In the bond market, the reasons for the sharp rise in yields, particularly at the shorter end of the curve, are crystal clear. Inflation in the United States has reached the Federal Reserve’s 2 per cent target, increasing the central bank’s confidence in pushing ahead with further rises in interest rates and fuelling speculation about a sharper tightening in monetary policy. The two-year Treasury yield, which is most sensitive to the Fed’s expectations, has doubled since last September. 

In the equity market, however, the poor performance of the benchmark S&P 500 index since January 26, when it reached its last of a series of record highs, is much more difficult to explain, particularly given the recent string of positive corporate news which ought to be lifting share prices. 

US companies have just enjoyed the strongest growth in quarterly earnings since the third quarter of 2010. According to Bloomberg, more than 80 per cent of the 265 members of the S&P 500 beat analysts’ forecasts for the first quarter of this year. 

Last week, Apple, the world’s most valuable company, launched a massive US$100 billion share buy-back plan and raised its dividend by 16 per cent – the largest increase yet in its capital returns to shareholders – as it reported an upbeat outlook for its iPhone sales despite concerns of a slowdown.