Stocks have seen some pressure in recent days, as more and more investors believe that the bear market in bonds has finally run its course. With the 10 year note yield currently right around the 3% level, investors seem to be getting increasingly anxious.
The 3% level in yields represents an important psychological barrier that, if broken, could see a sharp and rapid rise even higher in rates. Some analysts have already hiked their year-end predictions for the benchmark 10 year note, calling for yields to move between 3 and 3.5%.
The rise in rates can have an enormous impact on global financial markets. Higher rates can mean higher mortgage payments, higher credit card payments, higher student loan payments and higher corporate borrowing costs.
The potential effects on companies is clear: higher borrowing costs can lead to lower net profits, a reduction in workforce and the delay or even scrapping of expansion plans. These issues can then lead to a lower stock price and a lower stock market.
Consumers will also be impacted by higher yields. Those with adjustable-rate mortgages, or ARMs, could see dramatic increases in their monthly housing costs. Consumers that carry credit card debt could also get hit hard with higher payments. The bottom line is that consumers could see a sharp drop in disposable incomes and savings.
The pinch felt by the consumer could also weigh on equities, especially for stocks that are not consumer staples. Areas such as entertainment, travel, and high-end retailers could all be hit hard as the consumer becomes increasingly reluctant to open their wallet.
Although stocks and bond yields can rise simultaneously, such a positive correlation is not likely to last long.
Given rising inflation, an aged bull market in stocks and the global move towards normalization of monetary policy, yields could have a lot more in the tank from current levels compared to stocks.
That makes right now the time to begin allocating investment capital into alternative asset classes. And what better asset class under the circumstances than physical gold?
Gold has been considered a reliable store of wealth and value for centuries. The metal not only features the potential for significant upside price appreciation, but it may also act as a meaningful hedge against rising inflation, a weaker dollar and lower stocks.
In fact, contrary to popular belief, a rising-rate environment can be extremely bullish for gold and other hard assets. The metal has seen excellent performance in previous tightening cycles, and seemingly has even more tailwinds this time around.
Don’t wait for the next major stock market collapse or for increasing inflation to take a bite out of your portfolio. Speak with an Advantage Gold account executive today about the potential benefits of gold ownership. Our associates are here to answer any questions you may have, and can even show you how easy it is to add this key asset class using your IRA account.
The tug of war between stocks and bond yields will soon be decided. Explore your options for gold ownership today. Call Advantage Gold at 1-800-341-8584 to get started today.Tags: 10 year note, advantage gold, borrowing costs, consumer, gold, interest rate hike, mortgage