Today's blog post is intended to provide some historical perspective as to where three key benchmark interest rates/yields stood prior to U.S. equities, as measured by the S&P 500 Index, succumbing to bear markets.

A bear market in stocks is defined as a decline of 20% or more in the price level of a benchmark index, such as the S&P 500 Index, from its recent peak.  

Brian Wesbury, Chief Economist at First Trust Advisors L.P., has noted through the years that bear markets tend to occur when the Federal Reserve ("Fed") becomes too tight with its monetary policy.  

As indicated in the chart, the upper bound of the federal funds target rate is currently 2.25%. That target rate is actually down from 2.50% on 7/30/19, and stands well below its 30-year average of 3.02%, according to Bloomberg. The Fed is not tight by historical standards.  

A 3/22/12 article in Businessweek stated that data from Standard & Poor's revealed that, since 1953, U.S. stocks posted their best returns when the yield on the 10-Year Treasury Note (T-Note) rose to around 4.00%.

As of 8/30/19, the 10-year Treasury-note (T-note) yielded a paltry 1.50%, or 250 basis points below that 4.00% mark.

The escalation in the trade conflict between the U.S. and China has had a major impact on the Treasury yield curve, which inverted (spread between the 2- and 10-year T-notes) in August, and the performance of U.S. and global equities. 

Having said that, as of 8/30/19, the 2020 and 2021 consensus earnings growth estimates for the S&P 500 Index were 10.27% and 10.10%, respectively, according to Bloomberg. Those estimates do not portend a bear market or a recession, in our opinion.