TINA's Got A Flipside

TINA's Got A Flipside
Reda Farran, CFA

over 2 years ago1 min

During the darkest days of the pandemic in April 2020, stocks started rallying. There were several reasons why, but TINA – or there is no alternative – was one of the main ones: with bond yields so low, buying stocks was the only play in town for investors.

TINA’s back this year too. The graph shows how US stocks (the blue line) and bonds (the white line) have rallied together over the past five months despite normally being inversely – or at least not strongly positively – correlated.

But TINA’s got a flipside. If investors are indeed snapping up stocks because bond yields are very low, then stocks are set to tumble should bond yields rise meaningfully. And with the US Federal Reserve expected to hint at a slowdown in its bond-buying program during its conference tomorrow, bond yields could start to creep up.

That would spell bad news for stocks, thanks to TINA’s ugly side. But even more at risk are “growth” stocks, whose earnings growth becomes less valuable relative to other assets as bond yields climb. So if you’re invested in any growth stocks with high valuations, pay extra attention to the Fed’s comments tomorrow…

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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