Traders Game Plan What 10-Year Yield at 5% Spells for US Stocks

Traders Game Plan What 10-Year Yield at 5% Spells for US Stocks

Jessica Menton and Felice Maranz

Tue, September 15, 2026 at 3:06 PM GMT+3 5 min read

• ^GSPC -0.45%

(Bloomberg) -- Markets already had plenty to worry about as a historically volatile period for stocks kicks into high gear. A jump in the 10-year Treasury yield above 5% for the first time in almost three years upped the pressure even further.

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Unlike October 2023, when the S&P 500 Index traded some 10% below its all-time high amid worries about the ripple effects of a global bond rout, the benchmark gauge is currently sitting within 2.5% from its last record in August. Could this mean the S&P 500 is yet to price in the risks?

To strategists at firms including Wells Fargo & Co., the exact impact on US equities will likely hinge on the speed of the yields' advance going forward, as a sharp move up would sow anxiety on Wall Street. The backdrop puts even more focus on the Federal Reserve's interest-rate decision on Wednesday and Chairman Kevin Warsh's press conference right after.

"If the Fed indicates they will raise rates just once and then tap the brakes, traders will be relieved," said Max Wasserman, senior vice president and portfolio manager for the Miramar Team at Wealth Enhancement. "But if there isn't assurance on just how many hikes could be coming, or any hint that inflation may take awhile to bring down, then yields above 5% will require long-duration tech stocks to drop as investors reevaluate pricey multiples."

Higher bond yields pose a threat to equities by lowering today's value of future profits and making them less appealing next to low-risk assets. They also raise corporate expenses, putting a dent on margins. Prior to 2023, the 10-year yields was this high at the onset the Global Financial Crisis, which pushed policymakers to lower rates to near zero and deploy large-scale quantitative easing to support the economy.

Traders now see a nearly 90% chance that the Fed will lift rates on Wednesday after a highly anticipated inflation report showed consumer prices marched higher last month. Investors will listen carefully to Chair Warsh's press conference for hints on whether more hikes would be warranted by the end of 2026.

"Investors would likely welcome a "message of one and done," Ohsung Kwon, the chief equity strategist at Wells Fargo & Co., said by phone. "If they don't hike, it will be bearish for equities," he said, as the long end of the Treasury curve will probably spike.

Wasserman sees the psychological tipping point for the S&P 500 between 5% and 5.25% on the 10-year yield. Andrew Graham, partner at Jackson Square Capital, says a yield north of 5.10% would jump-start a correction in US stocks. And to 22V Research's Dennis Debusschere, the 10-year yield hovering in the 4.8%-5% range would pose some restraint on economic growth.

To be sure, the S&P 500 has brushed off the risks so far, rising 20% since a trough in late March and adding $11 trillion in market value during that time. Even amid Monday's bond selloff, Wall Street's chief fear gauge, the Cboe Volatility Index, remained near 17 — a level that doesn't typically signal market stress.

But to Stephanie Roth, chief economist at Wolfe Research, bond yields need to come down in order for US stocks to resume their advance.

"If rates or oil rises further, a more meaningful equity correction is likely," Roth said in a note to clients.

Risk Premium

High-growth, high-multiple technology stocks are often seen as vulnerable to rising rates because many of them are valued on projected profits delivered years in the future. The present value of those expected earning is worth less as yields rise. Portfolio managers, including long-term bulls on the sector, see the risk of fresh losses ahead for rate-sensitive tech stocks — as all signs suggest Warsh will make good on his policy threat given prices for goods and services are still stubbornly high.

"The Fed isn't going to disrupt this bull market run in stocks — as long as hikes aren't aggressive," said Tim Chubb, chief investment officer at Girard, a Univest Wealth Division, whose firm is overweight US equities and is buying the dip in equities on any selloffs. "But a potential overreaction and vulnerable corner of the market is likely tech shares with lofty multiples."

The equity risk premium, or the difference between the earnings yield of the S&P 500 and that of the 10-year Treasury yield, is one metric that's under intense scrutiny. The measure, often used to gauge the attractiveness of stocks versus other assets, is hovering near the lowest level since 2002, suggesting stocks are likely to become more sensitive to moves in bond yields.

JPMorgan Chase & Co. strategists led by Nikolaos Panigirtzoglou see the equity risk premium shrinking to 100 basis points below historical average amid three reasons, one being a higher sensitivity of stocks to bond yields.

Others are betting that the selloff in global bonds may indeed be reaching an exhaustion point, which may in turn help support stocks.

"With investor sentiment already deeply bearish on bonds and speculative short positions in 10-year Treasuries near record highs, the move appears increasingly overextended," according to Larry Adam, chief investment officer at Raymond James. "That suggests yields may be closer to a peak than the start of a new, sustained leg higher."

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