Stock Market Normality Returns, and It Hurts

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Stock Market Normality Returns, and It Hurts
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Three ways that the market seems to be returning to normal, plus one possible change in its long-term pattern, from jmackin2

The thematic bubbles peaked from January to March and began to deflate, although froth returned in October .

The strength of the link between bond yields and growth stocks was on full display on Monday and Tuesday. When 10-year Treasury yields rose above 1.8% for the first time since January of 2020 it prompted an intraday 3% selloff in growth stocks—before Treasury yields started to fall and growth stocks tore ahead again.

Back in the 1990s, and earlier, higher yields were more likely to be an indication of concern about inflation than of stronger real growth, so there was nothing good to offset the pain of higher yields for stocks, and vice versa. Since 2000, days with higher bond yields have also tended to be good days for stocks, as investors focused on the positive news of a stronger economy.

The Federal Reserve says it will accelerate the wind-down of its bond-buying program, the biggest step the central bank has taken in reversing its pandemic-era stimulus. Here’s how tapering works, and why it sends markets on edge. Photo illustration: Adele Morgan/WSJ

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