Markets opened sharply down today, January 30, maybe a delayed January effect or maybe a shock of jitters. As we write it seemed poised to be the worst day since August. The talk of the move is that a sharp increase in bond yields in the US and Europe had shocked markets and might be hard for equity markets to absorb. Goldman Sachs commented:
“The ability of the equity market to absorb higher bond yields is critical . . So far, it has been able to do so as growth expectations have continued to rise. But there are risks that the bond markets adjust too rapidly from current levels.”
Rising bond yields may accelerate a move away from defensive equities and rapid moves may indicate a return to volatility that has been as absent in fixed income markets as it has been in equities. It is also an interesting indicator of the tendency of bonds and equities to move in sync currently – instead of presenting diversifying characteristics there is a wide dispersion in how equities respond to bond movements. Healthcare stocks also reacted to the news that certain large corporations were setting up a company to endeavor to get health care costs down.