US equities are extremely sensitive to bond yield moves – SocGen

How high is too high for bond yields? These are Société Générale’s best-estimate ranges for US 10-year yields in various scenarios.

Bond yields have a substantial impact on the S&P 500

No recession: US 10y yields ranging between 4-5%, S&P 500 = 4,050-4,750. 

Mild recession (SG 2024e base case): US 10y yields ranging between 3-3.5%, S&P 500 = 3,800. 

Hard landing (recession): US 10y yields ranging between 2.5-3%, S&P 500 = 3,100-3,500. 

Irrational exuberance (no landing and risk of a global event trigger Fed easing): an ‘exuberance’ value for the S&P 500 in this scenario would be new highs.

We expect profit growth to accelerate over the next two quarters, hence our S&P 500 target range of 4,050-4,750. A mild recession in the middle of 2024 should lead to a higher risk premium, driving the S&P 500 back to 3,800.