Deepening conflict in the Middle East has sent oil prices surging and Treasury yields climbing to levels that have equity investors on edge, raising fears that pain so far largely contained in the bond market could soon spill over into US stocks.
Oil prices spiked to $100 a barrel for the first time since May this week, as the renewed hostilities revived investor worries over global supply disruptions from a near-halt in trade through the Strait of Hormuz.
Oil prices eased to just below $100 on Friday.
Higher oil prices have intensified concerns that the Federal Reserve will need to raise rates to head off mounting inflation pressures, pushing the yield on benchmark US 10-year notes to 4.71%, its highest level since January last year.
That has some investors worried about the near-term outlook for stocks, which so far have only started to feel the heat.
“I think investors did a pretty good job of shrugging off the initial phase of hostility… but the light at the end of the tunnel optimism appears to be dimming,” said Jack Ablin, chief investment officer at Cresset Capital.
“I kind of draw a line in the sand at four and three quarters on the 10-year,” Ablin said, noting that a climb in the 10-year yield above 4.75% would start to hurt stock valuations significantly.
That is because investors use interest rates to figure out what future company profits are worth today – higher rates make those future profits look less valuable now, diminishing the appeal of stocks.
Kristina Hooper, chief market strategist at Man Group, is also concerned about rising rates.
Rising rates “could very well become problematic soon. We have the 30-year yield at a place that it hasn’t been in years, and could easily go higher given concerns around inflation and given concerns around fiscal sustainability of the US and as the war in the Middle East drags on,” said Hooper, who sees the 5% level on the 10-year yield as a critical barrier.
“That doesn’t mean that we won’t see pressure before then, but to me, that is a psychological level that can be quite impactful,” she said. – Reuters
- Middle East conflict has driven oil prices to $100 a barrel, raising fears of global supply disruptions.
- Oil prices slightly eased below $100 after the initial spike.
- Rising oil prices increase inflation concerns, pushing the US 10-year Treasury yield to 4.71%, the highest since January last year.
- Investors worry higher yields above 4.75% could significantly hurt stock valuations by diminishing the present value of future profits.
- Experts highlight the 5% yield on the 10-year note as a critical psychological level amid inflation, fiscal concerns, and ongoing Middle East tensions.
Oil prices spiked to $100 a barrel for the first time since May this week, as the renewed hostilities revived investor worries over global supply disruptions from a near-halt in trade through the Strait of Hormuz.
Oil prices eased to just below $100 on Friday.
Higher oil prices have intensified concerns that the Federal Reserve will need to raise rates to head off mounting inflation pressures, pushing the yield on benchmark US 10-year notes to 4.71%, its highest level since January last year.
“I think investors did a pretty good job of shrugging off the initial phase of hostility... but the light at the end of the tunnel optimism appears to be dimming,” said Jack Ablin, chief investment officer at Cresset Capital.
“I kind of draw a line in the sand at four and three quarters on the 10-year,” Ablin said, noting that a climb in the 10-year yield above 4.75% would start to hurt stock valuations significantly.
Kristina Hooper, chief market strategist at Man Group, is also concerned about rising rates.
“
