With the stock market taking a new downturn since August, many people are beginning to reconsider whether owning stocks continues to be a profitable endeavor.
The S&P 500 broke the 3,900 limit after hours on Friday, and the index is trading at 3,757 midday Thursday, causing investors around the globe to wonder: does it even pay to own equities anymore?
On Monday, yields on Treasury bonds continued to rise, placing even more pressure on the stock market.
Yields on the 10-year treasury note were at 3.7% at the time of writing, reaching levels unprecedented since 2011.
The two-year treasury note was yielding over 4% Thursday.
Bond Yields At Highest Point In A Decade: This week, investors were selling bonds in anticipation of a Fed meeting where a third yearly increase to interest rates of 0.75% was confirmed.
This has caused the price of bonds to drop, taking yields up to their highest point in over a decade.
Both the S&P 500 and the Nasdaq took a dive on fears of a looming recession becoming more and more justified.
With the stock market reaching its lowest point since June and the S&P 500 back to early 2021 levels, many investors are beginning to wonder if equities can offer any risk premium against safe and risk-free treasury notes yielding 4% a year.
How Do Stocks Compete Against Risk-Free Bonds? The age-old adage saying that it’s impossible to time the markets continues to be true, even more in periods of extreme uncertainty.
The most market-moving events of the past few years, including the COVID-19 pandemic and the Russia-Ukraine war, were not necessarily expected or taken into account by the market until weeks before they occurred.
Attempting to predict average returns for the entire market for extended periods like two or even 10 years is likely a futile task.
Still, there are approaches investors can take to figure out if the stock market is still a worthy investment.
Thinking About Market Risk: According to author Morgan Housel, there’s no universal measure for risk in investing, as risk is measured by each individual’s personal objectives.
Setting goals and time frames is the first step towards understanding whether it’s best to play it safe. For the investor looking to navigate the current “permacrisis” and come out safe on the other end, a 4% annual yield on a two-year bond can sound like an appealing alternative.
Using Analyst Ratings As Investing Tool: Other strategies are possible for investors looking to make bigger returns. Focusing on specific sectors — as opposed to the entire market — could be a reasonable strategy.
Benzinga’s Analyst Ratings data shows the latest price target information and ratings from a variety of equity analysts from different firms in real time.
Readers can sort by stock ticker, company name, analyst firm, analyst accuracy, rating change or other variables.
Active day traders can sign up for a free trial of Benzinga Pro to access Benzinga’s real-time Newsfeed, Analyst Ratings Calendar and a number of other valuable features.
A recent independent analysis of the analyst ratings tool concluded that changes to an analyst’s price target are the most accurate trading signal available for investors and traders today and they can successfully be used as trading indicators to outperform the stock market.
As analysts focus on a handful of stocks from specific sectors, their analysis is one of the best resources available to predict the behavior of individual stocks.
Focusing on individual sectors poised for growth — like health care or alternative energies — could turn out a winning strategy against 4% earnings, though carrying substantially more risk.
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