Rising bond yields are presenting a significant challenge to the US stock market, with many analysts and traders anticipating a potential correction. According to a Bloomberg Markets Pulse survey, approximately 30% of 122 respondents believe that if 10-year Treasury yields reach between 5% and 5.25%, the stock market could experience a 10% decline from its peak, meeting the definition of a correction. An additional 22% of respondents projected this correction would occur if yields climb to 5.25% to 5.5%.
Investors are closely monitoring an upcoming Federal Reserve meeting, with market pricing currently leaning towards a rate hike, though many investors remain uncertain. The 10-year Treasury yield is nearing the critical 5% level, and the potential fallout from a rate hike on bond yields is a primary concern. The broader market sentiment suggests that while a single rate hike might not be the sole catalyst for an equity bull market's end, a prolonged tightening cycle could pose a greater risk.
Recent market activity reflects this apprehension. Brent crude prices spiked above $105, and US producer prices saw their largest increase in three months, contributing to a global rise in bond yields. Money markets are currently pricing in a 67% chance of a Fed rate hike next week. Despite these concerns, some analysts, such as Kevin Thozet at Carmignac, suggest that strong earnings growth expectations in the US market could help shield stocks from a significant downturn, even with rising capital costs. Other market participants are also looking to the August US inflation report for further clues on the Fed's next move. On September 11, US stocks and Treasuries saw some respite as oil prices eased, with S&P 500 futures rebounding by 0.5% and Oracle Corp. jumping 7% on positive data center news.
