Wall Street closed out a turbulent week in strong fashion Friday on the heels of an upbeat report on employment. The Dow rose 572 points, or 1.8%, to 31,496; the S&P 500 rose 73 points, or 1.9%, to 3,841; and the Nasdaq rose 196 points, or 1.5%, to 12,920. The spark was a government report that showed employers added hundreds of thousands more jobs last month than economists expected, an encouraging sign for the economy. But it's a complicated stew. For about a year, the stock market has been climbing on expectations that an economic recovery was on the way, even when the pandemic meant conditions at the time seemed very bleak, per the AP. Now that the recovery is much closer on the horizon, the market is unsettled because one of the main underpinnings for that incredible run is under threat: ultralow interest rates.
Yields in the bond market have been marching higher with rising expectations for the economy’s growth and for the inflation that could accompany it. Economists have been upgrading their forecasts for this year as more people get COVID-19 vaccines, businesses reopen, and Congress gets closer to pumping another $1.9 trillion of financial aid into the economy. The worry is that inflation could take off, or something else could happen to jack yields up even further. It’s the speed at which Treasury yields have climbed that has gotten Wall Street so uncomfortable, more than the actual level, which is still low relative to history. Higher yields put downward pressure on stocks generally, in part because they can steer away dollars that had been headed for the stock market and into bonds instead. That makes investors less willing to pay as high prices for stocks.
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