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When to Expect a Collapse in American Stocks

22.02.2024

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An increase in the real yield on 10-year Treasury bonds to 2.5–3% could stop the growth of the “Magnificent Seven” stocks that has continued since 2022. Bank of America (BofA) analysts came to this conclusion.

Experts have identified similarities and differences between the “bubbles” in world markets over the past 100 years and what is happening in them now. Reaching a certain level of inflation-adjusted government bond yields has become the most common cause of stock market crashes.

In 12 of the 14 market crashes, bond yields rose as bond prices peaked and financial conditions tightened. For example, with a real rate of 4%, a collapse occurred in Internet projects in 2000, and in 2007, with a rate of 2%, Chinese stocks collapsed. According to BofA analysts, given the global debt stock, «Magnificent Seven» stocks could begin to fall as soon as the real yield on Treasuries rises to 2.5-3%. We should not forget that history is cyclical, and some events can be provoked artificially, for example, a situation when demand or supply reach peaks opposite each other.