The 10-year Treasury yield touched its highest level since June 2007 on Friday, and the 30-year yield reached levels last seen in 2004. Investors are split on whether strong growth or persistent inflation is driving the move, but the divide is already reshaping which stocks win and which lose.
Treasury yields kept climbing into the weekend, with the 10-year note briefly reaching 5.230%, its highest since June 2007. The 30-year yield rose above 5.51%, a level not seen since 2004, while the 2-year note yield stood near 4.90%.
Wall Street can't agree on the cause
Strategists disagree on what is pushing yields higher — stubborn inflation, rapid growth, or the exploding deficit. But the shared concern is that higher rates are here to stay, and eventually something has to break. Strong economic surveys released Wednesday, especially in manufacturing, fed the debate, with some investors reading them as confirming that the bull case for equities remains intact.
Tech rallies while cyclicals lag
That split view showed up directly in stock performance this week. The Dow Jones Industrial Average, financials and small caps lagged, while the Nasdaq Composite, the Magnificent Seven and semiconductors advanced.
The S&P 500 stayed near all-time highs in September, suggesting momentum still favors the market heading into what is historically the year's strongest quarter. Yet those same highs raise the risk of a downturn, particularly with a consequential midterm election season ahead.
Consumers start to feel the squeeze
Higher yields are also pressuring households. The average rate on a 30-year fixed mortgage jumped to 7.45% this week, its highest in more than two years, according to Mortgage News Daily. Justin Bergner, portfolio manager at Gabelli Funds, said: "Consumers' been holding in. How long can that last? That's what worries me."
Next week brings the August personal consumption expenditures price index and the September jobs report, which should show nonfarm payrolls roughly halving to 85,000 from 162,000 in August, with unemployment expected to hold at 4.1%. Both land just before the Federal Reserve's October meeting.
Source: CNBC
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