For the first time in 22 years, the return on cash, defined as the interest rate that the US government pays on 3-month Treasury bonds to investors, is higher than the return on stocks within the S&P 500 index.
Last year, the Fed responded to rising inflation by aggressively raising interest rates and stocks took a hit.
The S&P 500’s dividend yield rose to 5.8 percent in mid-October, around the same time it hit bear-market lows near 3,500 points.
But with the S&P 500 up more than 20 percent from these lows and corporate earnings plummeting, the index’s dividend yield has narrowed to about 4.7 percent.
Meanwhile, the Fed continued to raise interest rates, sending yields higher across the Treasury curve.
While much attention has been paid to the recession warnings sent by the inverted yield curve, the 3-month note now yielding close to 5.5% has made this cash-like holding competitive in the stock market for the first time in nearly a generation. The effects on the stock market are already being felt in a big way, according to Yahoo Finance.
2023-08-24 19:50:31
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