Strategas says a far worse dive for bond prices is needed before stock-market pain is felt
The yield on the 10-year Treasury note is not close to a pain-inducing level for stocks just yet, says Strategas.
Beads of sweat may be forming in the stock market as the selloff in bond markets continues sending Treasury yields to multiyear highs, with equity-index futures - notably in tech - pointing lower for Tuesday.
As MarketWatch's Joseph Adinolfi reports, the bull market has brushed aside some pretty major events on its six-year climb, including the worst-ever bond selloff and a war with Iran this year.
That resiliency, of course, may only work until it doesn't.
In our call of the day, Jason Trennert, chairman and CEO of Strategas Research Partners, and Strategas's chief market strategist, Chris Verrone, say a much worse bond selloff will be needed before stocks really start to feel pain. "Money doesn't want to leave the asset class of equities," Verrone said in a podcast interview the pair did with "Big Short" investor Steve Eisman that aired Monday.
"We're in this remarkably rotational tape right now, and I think it speaks to the idea that, until we find what level of interest rate is truly considered competitive to equities, you're going to stay in this highly rotational tape," he said.
Verrone said a prior S&P 500 SPX high on June 2 saw just 50% of the index trading above its 200-day moving average - a long-term support level viewed as bullish - but that level has since reached 75%. "So, even as the market has churned for the last eight weeks, the internals have gotten better, not worse, even as semis corrected," he said, referring to semiconductor stocks.
"This is a very rotational tape" that's "yet to find the rate [of] interest that gets money to leave equities," Verrone said. "I think it's higher than most people think."
Trennert and Verrone indicated they expected that pain level would be a 10-year Treasury yield BX:TMUBMUSD10Y of 4.5%, because that's where stocks got rattled in 2023, 2024 and 2025. "But now it seems higher," Verrone said, "and you got corrective periods from when we hit 4.5% in the past, but I think, if we're really going to end the cycle, it's a level much higher than some people think."
What could that look like? He noted that Japanese government bond yields in 1989 went from 4% to 8% as the the Nikkei JP:NIK was "melting up," while, during the dot-com-era Nasdaq boom, in 1999, the 10-year Treasury yield climbed to 7% from 4%. While the 10-year is probably not headed to 7%, given that the nominal U.S. growth rate - GDP plus inflation - is sitting around 6.5%, that pain level is higher than most think, rather than at 4.7%, he said.
Nevertheless, Trennert said, there is reason to be concerned about a "gathering storm" for stocks, driven by resurgent concerns over the war in Iran and what the Fed will do with interest rates. He and Verrone are also a bit rattled that the past 72 hours - recall that the podcast first aired Monday - had seen increased chatter of a "boulevard of green lights" for hyperscalers as AI demand doesn't appear to be slowing soon.
"I'm personally nervous because the market is so concentrated" in tech, Trennert said. Companies such as Amazon (AMZN) are likely going to have a tough time ramping up capital spending that's not going to come from cash flow to reach their goals "without hitting the bond and equity markets," he said.
"When stocks are going up and they don't care, at the same time long-term interest rates are going up, and the stock market seems impervious - that's the point at which you have the most risk," said Trennert.
Verrone noted that in the 400 days since the second inauguration of President Donald Trump, the range for the 10-year Treasury yield has been the narrowest the firm has ever seen - 85 basis points over that period. "I just don't think this move in yield is as explosive yet as it's going to need to be," he said, "if it's going to disrupt equities."
The markets
U.S. stock futures (ES00) (YM00) (NQ00) are lower, with oil prices (CL.1) rising and gold (GC00) and silver (SI00) pulling back. Pressure continues in the bond market, with the yield on the 30-year note BX:TMUBMUSD30Y hovering at levels not seen since 2007.
Key asset performance Last 5d 1m YTD 1y S&P 500 7785.76 0.36% 4.40% 13.74% 20.71% Nasdaq Composite 26,729.16 0.14% 4.74% 15.00% 23.61% 10-year Treasury 4.694 -1.90 9.70 52.20 35.40 Gold 4450.3 0.04% 10.93% 2.73% 31.74% Oil 83.08 0.95% 0.80% 44.71% 32.76% Data: MarketWatch. Treasury yields change expressed in basis points
The buzz
A cargo ship was reportedly struck in the Strait of Hormuz, and Ebrahim Zolfaghari, spokesman for Iran's Khatam al-Anbiya central headquarters, said on X that vessels passing through the strait "will find several beautiful holes in their hulls." Oil prices (CL.1) (BRN00) are only modestly higher.
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The chart
The chart from Bank of America's August Global Fund Manager shows 53% of those polled view "long global semiconductors" or big bets on those stocks rising, as the most crowded trade, though that has been pared from last month's record high of 82%.
Top tickers
These were the most searched ticker symbols on MarketWatch as of 6 a.m.:
Ticker symbol Security name NVDA Nvidia SPCX SpaceX MU Micron TSLA Tesla SNDK Sandisk TSM Taiwan Semi AAPL Apple AMD Advanced Micro Devices MSFT Microsoft AMZN Amazon
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