Rising Treasury Yields, Resilient Stocks, and the Election Ahead
The stock market continues to demonstrate remarkable resilience, even as rising Treasury yields, inflation concerns, and political uncertainty give investors plenty to think about. With the S&P 500 near record highs and the 10-year Treasury yield climbing above 5% for the first time in more than two decades, could this long-running bull market be approaching an inflection point?
In the October edition of Market in Five Charts, Chairman and Chief Global Strategist Rick Pitcairn examines five developments shaping the market outlook.
1. Treasury Yields Reach a Critical Level
The 10-year Treasury yield has climbed above 5.2%, a level not seen in over 20 years. Rick has long cautioned that yields above 5% could pressure equities and potentially interrupt the bull market.
Bond market sentiment is overwhelmingly bearish, with roughly 90% of participants expecting yields to rise further. Rick, however, believes a pullback is possible. Moderating energy prices and slower economic growth following the AI-driven investment boom could provide some relief.
If yields continue climbing toward 5.5%, however, stocks may face increasing pressure.
2. Today’s Market Isn’t 1999
Despite higher interest rates, the S&P 500 remains near record highs, helped by another strong advance in the Magnificent Seven technology stocks.
That concentration has revived comparisons to the 1999 technology bubble, but Rick sees a meaningful distinction. Today, approximately 61% of stocks remain in an uptrend. In 1999, roughly 75% were declining even as a handful of technology companies drove market performance.
While leadership remains concentrated, the broader market is considerably healthier than it was during the dot-com era.
3. A Solid Labor Market Supports the Bull Case
The Federal Reserve continues to balance its dual mandate of maintaining employment and controlling inflation.
Initial unemployment claims remain on a downward trend, signaling a solid labor market. Combined with relatively strong economic growth and elevated stock prices, these conditions lend support to the bull market while allowing the Fed to focus more closely on inflation.
4. Why Are Investors Still Uneasy?
One of today’s more interesting contradictions is the disconnect between market performance and investor sentiment.
Stocks are near record highs, economic growth remains healthy, and employment is holding steady. Yet investor confidence remains fragile.
Rick attributes some of that unease to uncertainty surrounding AI, interest rates, and political polarization. While these concerns warrant attention, they don’t necessarily signal deterioration in the underlying economy.
5. Will the Midterm Elections Surprise Markets?
With November’s midterm elections approaching, prediction markets suggest Democrats could gain control of both chambers of Congress. As of October 13, Polymarket placed the probability of a Democratic Senate takeover at approximately 64%.
Rick believes markets may already be anticipating divided government, an outcome that has historically been associated with legislative gridlock and, at times, lower Treasury yields and inflation.
If the election unfolds as expected, the market reaction could be muted. An unexpected result, however, could introduce fresh volatility.
The Bottom Line
Despite higher Treasury yields and persistent uncertainty, the fundamentals supporting this bull market remain reasonably strong. The labor market is solid, economic growth continues, and market participation is healthier than some headlines suggest.
The key questions now are whether Treasury yields will stabilize, how the Fed will navigate inflation, and what surprises November’s elections might bring.
For long-term investors, the message remains familiar: Stay focused on the fundamentals rather than the headlines.
