When Yields Are High, Should We Buy?

We had an interesting situation on Thursday in which both the price of the S&P 500 Index (SPY) and the ten-year Treasury yield hit 40 day highs during the session. Rising rates have been the bane of many a bull market, but how have they affected prices recently?

I went back to 2004 (N = 819 trading days) and examined what happened in the S&P 500 Index following rising vs. falling 40-day periods in the 10-year yield. When the yield has been up over the past 40 days (N = 398), the next 40 days in SPY have averaged a gain of only .12% (206 up, 192 down).

When 40-day yields have fallen (N = 421), the next 40 days in SPY have averaged a healthy gain of 2.54% (326 up, 95 down).

What that tells us is that much of the rise of the recent bull market is associated with periods of falling yields. This, in addition to the tepid participation in the recent rise, is a reason I'm not chasing current highs in U.S. equities.