Introduction
According to Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, U.S. stocks are more sensitive to shifts in economic growth than to changes in Treasury yields. A recent study by RBC, based on historical data since 2000, found that the S&P 500 typically falls by 12% during quarters when both real GDP and 10-year Treasury yields decline. These findings add to existing concerns that a “growth scare” could trigger a significant market drawdown, with potential declines ranging from 14% to 20% from recent peaks.
Key Takeaways
Sensitivity to Growth: The S&P 500 tends to drop by about 12% in quarters with falling real GDP and 10-year yields.
Growth Scare Risks: RBC warns of a potential market drawdown of 14-20% amid current economic conditions.
Investor Sentiment: The weekly AAII survey shows net bullish sentiment at -37.8%, far below the long-term average.
Broader Concerns: Weak ISM manufacturing new orders and declining political sentiment—reflected in falling Trump approval ratings—compound market uncertainty.
Detailed Analysis
Economic Growth vs. Treasury Yields
RBC’s analysis suggests that stock markets are more directly influenced by economic growth than by movements in Treasury yields. When both real GDP and 10-year yields decline simultaneously, the S&P 500 has historically dropped by a median of 12%. This relationship underscores the risk of a “growth scare,” where a weakening economy can have a more severe impact on equities than anticipated.
Market Vulnerability and Investor Sentiment
Recent data shows the S&P 500 has fallen 6.6% from its recent high, with investor sentiment taking a hit as net bullishness in the AAII survey fell to -37.8%. This level of bearish sentiment mirrors those seen during major market drawdowns in 1990, 2009, and 2022, highlighting the potential for further declines.
Corporate and Political Factors
Calvasina also pointed to deteriorating corporate orders—evidenced by a drop in ISM manufacturing new orders—and a decline in political sentiment, which is now tracking more closely with S&P 500 pricing. In particular, the falling net favorability of President Trump, as reported by RealClearPolitics, is adding another layer of uncertainty.
Stay Informed with Real-Time Market Data
For investors looking to navigate these turbulent times, leveraging real-time data is essential. Here are two valuable APIs:
Economics Calendar APIStay updated on key economic indicators and events that can signal shifts in GDP growth and Treasury yields.
Market Most Active APITrack high-volume trading activity and monitor which stocks are most affected by economic changes.
Conclusion
RBC Capital Markets’ recent analysis highlights that U.S. stock performance is intricately linked to economic growth dynamics. With historical data suggesting a 12% drop in the S&P 500 during quarters of economic slowdown—and with current indicators showing weakened consumer and manufacturing sentiment—the market appears vulnerable to a potential “growth scare.” As political uncertainty and slowing economic activity continue to weigh on investor confidence, staying informed through real-time economic data is crucial for navigating the path ahead.
Stay tuned for more insights and real-time updates to help guide your investment decisions during these challenging times.
