US Stocks Resilience Amid Treasury Bond Sell-Off

According to analysts at Capital Economics, US stocks have remained stable despite a sell-off in Treasury bonds over the past month, with expectations for a rally soon.

Recently, Treasury yields have increased as investors reevaluate the Federal Reserve's anticipated interest rate cuts. The Fed decreased rates by 50 basis points in September, and markets anticipate further reductions in its last two meetings this year. However, due to recent strong economic and labor market data, traders are questioning whether the Fed will slow down the pace of cuts.

In addition, analysts have pointed out that the potential re-election of Donald Trump in the upcoming Nov. 5 presidential election could positively influence Treasury yields.

On Monday, the benchmark 10-year Treasury note yield reached its highest level since July 11, while the 2-year note exceeded 4.16% for the first time since early August. Typically, yields and prices move inversely.

Markets are monitoring new economic data and corporate earnings reports this week. Rising Treasury yields may deter consumer activity and borrowing, potentially impacting growth and unsettling stock investors.

However, Capital Economics Senior Markets Economist Diana Iovanel remarked that the Treasury sell-off has not significantly affected sentiment towards the S&P 500 index. She noted that if yields continue to rise rapidly or stay high, equities could face more pressure. Nonetheless, she remains optimistic that yields will eventually decrease, supporting the outlook for a 'soft landing' in the US economy while ensuring stable policy continuity.