The U.S. stock market made it official on Wednesday. At 3,453 days, this is now the longest bull market ever, and it looks like it still has plenty of room to run. We say this because the market isn’t showing any signs of slowing down.
The S&P 500 reached a new all-time intraday high of 2,873.23 on Tuesday — a level it eclipsed during the day today — and we don’t think it will take long for the index to set a new all-time closing high.
One of the reasons we have so much confidence in this bull market is that the lid that has been put in place on Treasury yields.
Typically, when you have an economy that is growing faster than 4% and a central bank that is tightening monetary policy, you see longer-term Treasury yields move higher. When this happens, it becomes more expensive for companies to borrow and expand, and traders start to worry that growth rates are going to slow down and equity prices might suffer.
In fact, we were seeing exactly that in early 2018 when the yield on the 10-year Treasury (TNX) broke above 2.8% on Feb. 2 for the first time since early 2014 (see the daily chart of the TNX in Fig. 1).
Fig. 1 — Daily Chart of the 10-Year Treasury Yield (TNX)
This acceleration in Treasury yields triggered a mass sell-off in the equity market that we just barely recovered from.
Traders were sure that Treasury yields were going to keep climbing higher and higher throughout 2018, but, interestingly, once the TNX reached 3.1%, it abruptly turned lower and hasn’t spent any meaningful time above the 3% level since.
These lower long-term rates have provided corporate America with an accommodative monetary environment for much longer than anyone had anticipated. Coupled with the Trump administration’s tax cuts and the strong economy, these low rates have boosted margins and helped keep borrowing costs low.
Basically, so long as the TNX remains below 3%, the stock market has a green light to continue moving higher.
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