10-year Treasury yield makes market nervous: Morning Brief

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Last year, as Treasury yields rose, stocks mostly bucked the move. The spin from the strategists: Yields are rising because of the expected economic growth, so everything is copacetic. And with the anticipation that rate cuts from the Fed were imminent, there was yet another reason to stay calm.

Investors are no longer chill where the 10 year yield (^ TNX) is interested. It is pushing towards 4.7%, closing at the highs of the end of 2023.

One of the reasons is that this time, the increase is accompanied by data showing that inflation will accelerate again, especially in this week’s report from the Institute for Supply Management, which stated that the prices paid for the services were growing.

Markets have already reduced expectations for more Fed rate cuts this year. Now they may have to adjust those forecasts even further, especially given that incoming President Trump’s fiscal policies are generally viewed as potentially inflationary — a sentiment at the before the minutes from the Fed’s December meeting.

“My main fear is that the inflation genie has never been put back in the bottle after the peak of Covid inflation,” Jurrien Timmer, director of global macro at Fidelity Investments, he said in an interview with Yahoo Finance. “If the economy really accelerates without the inflation dragon being completely slain, we could see inflation, which is currently in the high twos, back into the threes and maybe three and a half or fours. It’s not a prediction, but this is a scenario that I think prevents the Fed from raising rates further.”

This, said Timmer, is not a scenario that the market is pricing in now.

There is debate over what level in the 10-year yield would be particularly problematic for stocks, with consensus hovering around 5%. And the markets have already had a taste of it: the less careful The 20-year Treasury reached 5% this week.

Despite the returns, most Wall Street strategists (including Timmer) still expect gains for stocks this year.

Michael Arone, State Street Global Advisors’ Chief Investment Strategist for its US SPDR Business, said earnings — not fiscal policy, not the Fed, and not Trump — will determine where stocks go this year.

“From my perspective, I think investors are wrong to obsess over how many Fed rate cuts we’re going to get this year,” Arone said. in an interview. “Earnings are growing, and I think that’s where the focus should be.”

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