According to Danske Bank's research team, global equities demonstrated notable resilience last week, ending only 0.5% lower despite a rapid rise in yields, with tech and cyclical sectors outperforming others [1]. Over the past two weeks, equities have actually risen by 0.4%, a stronger performance than typically expected during periods of sharp yield increases [1]. The S&P 500 gained 0.7%, Nasdaq rose 1.2%, and Stoxx 600 was up 0.8% on Friday, driven by a softer-than-expected September job report [1]. Most sectors closed in the green, with consumer discretionary, tech, and industrials leading the gains [1].
The tech sector, usually sensitive to yield changes, was the strongest performer, adding 1.5% over the past week, while health care and banks, often considered safe havens, sold off by 3% [1]. The global semiconductor industry rallied 10% over the past month, which is atypical during a rates shock [1]. Despite a spike in bond volatility (MOVE), equity volatility remained very low at the index level [1].
Danske Bank attributes this divergence between equity and bond market responses to robust earnings growth, stating that the current earnings cycle is among the strongest in modern history [1]. This strong earnings environment is seen as the primary factor offsetting the negative impact of rising yields on equities [1]. The research team suggests that equities should be treated differently from other asset classes and their own historical patterns during such periods [1].
No forward-looking statements or analyst opinions regarding future market direction were provided beyond the explanation of current resilience and sector performance [1].
CONCLUSION
Global equities have shown unexpected strength amid rising yields, largely due to robust earnings growth, with tech and cyclicals leading gains. Despite increased bond volatility, equity volatility remains subdued, highlighting the unique dynamics of the current market cycle. The strong earnings cycle is seen as the key factor supporting equities against the rates shock.