Kathryn Rooney Vera, Chief Market Strategist at StoneX, Discusses How Bond Market Volatility Impacts Equities on Bloomberg Markets

Key takeaways

• Rising bond yields reflect the end of secular stagnation rather than political chaos
• A potential trade war would impact multinational companies heavily weighted in the S&P 500
• There is a concentration risk in tech, with opportunities to reallocate assets to defensive sectors

Kathryn Rooney Vera, Chief Market Strategist at StoneX, was recently featured on Bloomberg Markets to discuss the potential impact of bond market volatility on equities.

Rooney Vera offered her perspective on rising US Treasury yields, suggesting they're increasing not because of political uncertainty but due to fundamental economic shifts. "My contention is that US Treasury yields are moving higher not because of chaos or Donald Trump, but rather because I think we're at the end of secular stagnation, or this global savings glut," she explained. She also noted that investment as a percentage of global GDP is at a high of 27%, indicating that "the fiscal pass that the bond markets have given the government has come to an end."

When discussing potential market risks, Rooney Vera noted that tariffs pose a significant threat to multinationals heavily weighted in the S&P 500. She reminded viewers that "we saw in 2018 with Trump 1.0... tariffs were imposed - far fewer than what he had threatened - but we saw about an 8% drop in the S&P 500." However, she emphasized that a blowout of the fiscal deficit could be even more damaging than across-the-board tariffs.

Rooney Vera pointed to critical yield thresholds that could trigger market corrections. With the 10-year yield currently around 4.5%, she says there is a "real threat of 5.5%." Should yields reach 6%, Rooney Vera says “we [will] see a meaningful correction in US equity markets, because then equity risk premium pales in comparison to what you can get for a risk-free asset."

For investors concerned about concentration risk in big tech, Rooney Vera says to consider protective puts and portfolio reallocation. "I do think there's opportunities to reallocate assets to potentially underperforming sectors or defensive sectors," she remarked, specifically highlighting healthcare, utilities and "more domestically oriented sectors” as alternatives.

Despite these concerns, Rooney Vera maintains a relatively positive outlook for the US economy: "I do think that this year is going to be a good year for the US economy, not a bad one," though she emphasizes the importance of protecting investment positions rather than liquidating them entirely. 

Dive Deeper: Access Kathryn Rooney Vera’s analysis

For more in-depth analysis on global market trends and investment strategies, subscribe to "Macro Strategy by Kathryn Rooney Vera.” This comprehensive suite of reports offers insights on socio-economic and political trends influencing global markets, authored by StoneX's Chief Market Strategist.

Access Now

Watch the full Bloomberg interview here.

Written by Hashvin Sandhu

Expert: Kathryn Rooney Vera, Chief Market Strategist

The authors responsible for the preparation of this commentary hereby certify that all the views expressed herein accurately reflect their personal views only. The author also certifies that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc. The views are current only through the date stated and are subject to change at any time based upon market or other conditions, and StoneX Group Inc. disclaims any responsibility to update such views. This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. Past performance does not guarantee future results.

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange.