The bond market sell-off that’s spooked investors could actually help work off some of the stock market’s excesses, according to investor and CNBC Pro contributor Josh Brown. Brown expects that equities overall will be able to handle the sharp rise in U.S. Treasury yields, which he expects will only hurt the most speculative parts of the stock market. He outlined a scenario that harkened back to 2022, when the rise in interest rates pummeled SPACs, recent IPOs and technology startups that are over-leveraged. “All of a sudden, capital has a cost, and people change their behavior when it actually costs them something to invest,” Brown said on CNBC’s “Halftime Report” on Thursday. “The two-year period leading up to ’22, there was no cost to invest because money was free.” (See Josh’s latest Best Stock analysis here.) “So, what you could end up having is a scenario. … [where] the general stock market rise as rates rise, and you could say, ‘Hey, look, the economy is going to be great. We’re going to get this extended tax cut that’s good enough for everyone else,'” Brown said. “But, it’s going to wreck the most speculative areas in the market that could act as a governor on multiples, even for the [S & P 500].” Small-cap stocks, he noted, are another corner of the market that would get hurt by the rise in yields. Yields tied to longer-dated maturities in the U.S. Treasury market have crossed key psychological thresholds this week. The 30-year U.S. Treasury yield topped 5.14%, its highest level going back to October 2023. The benchmark 10-year Treasury yield is hovering above 4.55%. Investors worry the spike in yields could hinder a stock market that’s rallied following the Trump administration’s announcement of a trade agreement with China, as investors worry about the impact of higher rates on the economy. However, Brown said he expects much of the move higher has already taken place, saying that evidence of a slowing economy later this year will tamp down the rise in yields. “I think the market has to decide which story is more believable, that we’re going to have supply chain shocks as far as the eye can see, or that the labor market is cooling, the economy is decelerating, and inflation is not the real risk,” Brown said. “My personal opinion is the latter. The Fed will be doing more rate cuts than people think today, and I think the economic data is trending that direction. And I can personally look through a 20-year, 30-year north of 5%. For me, that seems like the head fake.” All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. INVESTING INVOLVES RISK. EXAMPLES OF ANALYSIS CONTAINED IN THIS ARTICLE ARE ONLY EXAMPLES. THE VIEWS AND OPINIONS EXPRESSED ARE THOSE OF THE CONTRIBUTORS AND DO NOT NECESSARILY REFLECT THE OFFICIAL POLICY OR POSITION OF RITHOLTZ WEALTH MANAGEMENT, LLC. JOSH BROWN IS THE CEO OF RITHOLTZ WEALTH MANAGEMENT AND MAY MAINTAIN A SECURITY POSITION IN THE SECURITIES DISCUSSED. ASSUMPTIONS MADE WITHIN THE ANALYSIS ARE NOT REFLECTIVE OF THE POSITION OF RITHOLTZ WEALTH MANAGEMENT, LLC” TO THE END OF OR OUR DISCLOSURE. Click here for the full disclaimer.
