Stocks are getting a boost as yields stabilize. Why that may be short-lived
Source
The U.S. 10-year Treasury note yield hit its highest level since November 2023 on Wednesday, then fell slightly to allow major domestic stock indexes to rise . That reprieve may not last too long. Some analysts aren't sure that the market can suddenly brush off higher yields. That's because they think bond yields' march higher isn't over, which will leave investors weighing its implications going forward. Ben Emons, founder and CIO at FedWatch Advisors, said in a Wednesday note that markets are only pricing in 60 basis points — or a 0.6 percentage point — of rate hikes through the end of the year . But the recent rise in the 10-year Treasury note yield could force the Federal Reserve to hike rates even more aggressively, he said. US10Y mountain 2023-11-01 U.S. 10-Year Treasury note yield since Nov. 2023. "The combined move in forwards and long‑term spot yields now implies a rate‑hike path of roughly 120 basis points—based on the current spread—playing out over a longer horizon," Emons wrote. "Yield moves reflect energy, tariffs, AI‑driven capex, heavy issuance, and a stronger economy." The CME Group's FedWatch tool shows traders are pricing in a 66% chance of the Fed increasing rates by a quarter-percentage point at its policy meeting slated for later this month. Emons added that oil is once again dominating headlines, as the U.S. and Iran reignite hostilities in the Middle East . West Texas Intermediate futures traded around $90 per barrel. He added that if U.S. oil prices come close to $100 again, that would raise the chances of monetary policy tightening at an accelerated pace. Meanwhile, Julia Hermann, global market strategist at New York Life Investment Management, said on Tuesday that the forces driving long rates higher are unchanged. So long as fiscal risk remains as the U.S. interest burden continues to grow and the lack of clarity regarding the Federal Reserve's strategy to curb inflation persists, there's few reasons to think long-term rates will begin to come in, she said. Yung-Yu Ma, chief investment strategist at PNC, agreed. "The path of least resistance for long-term interest rates continues to be higher," he said in an email to CNBC. "Upward movement in interest rates would likely lead to choppy equity markets unless there is a geopolitical breakthrough that leads to sharply lower oil prices." — CNBC's Fred Imbert and Michelle Fox contributed reporting.