Forget Stock Markets -- Here's What Investors Should Really Watch

The stock market had a down day on Wednesday, giving up early gains. The same concerns investors have had for a while seemed to weigh especially hard on stocks. These concerns include COVID-19 case counts and uncertainty about whether economic stimulus measures will get through Congress and the White House. By the end of the day, the Dow Jones Industrials (^DJI 0.69%), S&P 500 (^GSPC 1.20%), and Nasdaq Composite (^IXIC 1.59%) were all down.

Today's stock market

Data source: Yahoo! Finance.

The stock market gets the lion's share of most investors' attention. But those who concentrate only on stocks miss a lot of the context for the movements in share prices. Below, we'll look at several other markets to see how they could affect investors in different ways.

Image source: Getty Images.

Bond yields are on the rise

Bond prices have been moving lower recently, sending yields upward. Rates on 10-year Treasury debt moved higher to 0.82%, while the 30-year bond now has a yield of 1.63%.

To be clear, those are hardly sky-high rates. Moreover, short-term rates remain extremely low, with Treasury bills with maturities as long as two years into the future featuring rates of 0.15% or lower.

However, one of the reasons why investors have been willing to pay such high valuations for stocks is that alternatives are equally unattractive. In particular, interest rates get used by some valuation methods to discount future streams of income, and low rates pump up the acceptable prices some investors are willing to pay for shares.

Yields have tended to rise when the federal government seems closer to passing a big stimulus package. If Washington gives Americans more financial support, it could have the unexpected effect of forcing people to revisit their valuation expectations and send stock markets lower.

Safe-haven assets jump

Elsewhere, some assets seen as safe havens against uncertainty climbed. These included the following:

• Gold prices climbed 1% to $1,925 per ounce, sending SPDR Gold (GLD -0.25%) up by a similar amount.
• Silver and iShares Silver (SLV 0.24%) were up almost 2%.
• Bitcoin prices continued their ascent, rising more than $800 in 24 hours to touch the $12,800 level.

Assets like these often get investors' attention when stock markets look risky. Having gotten through much of October without a hitch, stock investors might be looking for ways to hedge their bets against unforeseen difficulties related to the November presidential election, the COVID-19 pandemic, and other sources of potential exogenous shocks.

Oil falls through $40

Finally, energy prices have been at rock-bottom levels lately, and Wednesday brought more bad news. The price of crude dropped more than 4%, plunging below the $40 per barrel mark in late-afternoon trading.

Low energy prices reflect several different factors. Energy use has been down as industrial production levels have been reduced by the coronavirus pandemic and related economic impacts. Meanwhile, cash-strapped exploration and production companies have bulked up production levels despite the supply glut in an effort to generate enough cash flow to stay afloat.

Eventually, something has to give in the energy sector, and it will likely involve mass bankruptcies of energy companies that aren't economically sustainable with oil at current levels. Unfortunately, low interest rates mean that the weeding-out process could take longer than it would ordinarily. Until it happens, though, a meaningful rebound in oil and natural gas might not be possible.

Watch the whole market

Stock markets don't move in a vacuum. Other markets interact with stocks and influence their rise and fall. By remembering that, you'll be in a better position to pay attention to other markets and think about what impact they could have on the stocks you own in your portfolio.