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Tags: Treasury prices | rates | drop | stocks

Investment Adviser Cook: Rising Rates Signal 24 Percent Drop for Stocks

By    |   Thursday, 11 June 2015 03:50 AM EDT

Treasury prices have tumbled in recent days, with the 10-year yield hitting an eight-month high of 2.48 percent Wednesday. That's not good news for stocks, says Mark Cook, who runs The Mark Cook Advisory Service for investors and traders.

"The stock market has an empirical rule: interest rates lead stocks. And the current interest rate environment is pointing to a massive decline for the U.S. market," he writes on MarketWatch

Treasurys are dropping amid signs of economic strength and anticipation of an interest rate hike by the Federal Reserve later this year.

Cook compares the environment to 1987, when interest rates rose throughout the summer in a run-up to the October stock crash. "These warning signs are again visible," he says.

Bond prices have slid about 12 percent since Jan. 31. As stocks generally fall by much more than bonds, it's conservative to estimates stocks will slide twice as far — or 24 percent, Cook says.

A 24 percent loss from Jan. 31 would put the S&P 500 at 1,516, down 28 percent from 2,105 Thursday morning.

Jeffrey Saut, chief investment strategist at Raymond James, doesn't share Cook's concern. He told Barron's the index may double to 4,300 within nine years.

"We are in a secular bull market," Saut said. "I have seen this play before, and secular bull markets tend to last somewhere around 14 or 15 years. And they tend to compound at a double-digit rate"

As for the near term, "the second quarter, from an economic standpoint, is still going to be a little squishy," he said. "But the underlying economy is actually stronger than the surface figures suggest. I expect to see stronger economic numbers coming out in the third and fourth quarters."

The economy shrank 0.7 percent in the first quarter, and the Atlanta Federal Reserve's forecasting model puts second-quarter growth at 1.1 percent.

Saut thinks the S&P 500 will reach 2,250 by year-end, a 6.9 percent gain from Wednesday's close of 2,105.

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StreetTalk
Treasury prices have tumbled in recent days, with the 10-year yield hitting an eight-month high of 2.48 percent Wednesday. That's not good news for stocks, says Mark Cook, who runs The Mark Cook Advisory Service for investors and traders.
Treasury prices, rates, drop, stocks
352
2015-50-11
Thursday, 11 June 2015 03:50 AM
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