One thing the continued bull market run shouldn't have to worry about is the climate of rising interest rates, at least for a while.
If history is any guide, the move higher in yields that began in mid-July shouldn't start affecting equity values until the 10-year note roughly doubles from its current level, according to an analysis this week from broker-dealer LPL Financial.
What it comes down to is that at least early in a higher-rate environment, the walk-up in yields is interpreted as a healthy sign for an improving economy. The negative impact doesn't happen until more serious inflationary pressures kick in — somewhere around a 5 percent yield for a benchmark Treasury security that was trading around 2.47 percent Tuesday afternoon.
"With the low level of interest rates and inflation, the market is interpreting higher interest rates as a signal of improving growth expectations. We think this is the right interpretation, while the stock market's solid track record of performance in rising interest rate environments offers reassurance," wrote Burt White, LPL's chief investment officer, and Jeffrey Buchbinder, the firm's market strategist.
Government bond yields reached what some strategists believe could be a generational low on July 8 of 1.37 percent. Since then, the S&P 500 has gained about 7 percent. The index spent four months trading in a range before breaking out on Nov. 9 after the presidential election and amid hopes that looser fiscal policy will help bolster economic growth in the years ahead.
LPL's research looked at 23 periods of rising rates since December 1962, with an average duration of just more than a year and a median span of 0.7 year. The typical change in the 10-year yield was 227 basis points, or 2.27 percentage points, with a median of 149 basis points.