Wall Street economist Ed Yardeni warned on Friday that a sharp rise in bond yields could spell trouble for the stock market — while insisting that the current level of rates is not enough to derail the rally.
Speaking to CNBC, the president of Yardeni Research said the 5.2% level on bond yields is not high enough to "kneecap" the stock market or the broader economy. But he identified 6% as the line where investors would get seriously cautious.
"We'd all start to get concerned if we got as high as six," Yardeni said, pointing to the possibility that higher interest rates could eventually open cracks in credit markets.
How cracks could form
Yardeni described the typical danger sequence: rising rates put pressure on financial markets, which can trigger a credit crunch that then leads to a recession. But he added that he does not believe the economy is currently in that kind of business-cycle environment.
His case for optimism rests on the economy's growth. Yardeni highlighted nominal GDP growth of 6.6% year over year in the second quarter, arguing the economy should remain on solid footing as long as bond yields stay below the pace of nominal growth.
Why he's still bullish
Despite rising yields, Yardeni said the backdrop for equities remains supportive. Earnings were "absolutely fabulous" in the first half of the year, he said, and he expects that momentum to continue — calling it "definitely an earnings-led bull market."
He also made a valuation point: stocks have actually become cheaper since the start of the year because earnings have grown faster than the S&P 500 itself. Valuation multiples are something investors should watch in the near term, he said, but his longer-term view on earnings is positive.
Yardeni flagged the remaining risks: a rebound in oil toward $100 a barrel, sticky inflation that could force the Federal Reserve to do more on interest rates, the federal deficit, and the amount of AI-related corporate debt. Concerns about oil had largely played out in the market by mid-September, he said, but the situation remains fluid.
At the time of the report, the 10-year Treasury yield hovered around 5.165% while the 30-year yield stood near 5.49%. Retail sentiment on the S&P 500 ETF was in "extremely bullish" territory, according to Stocktwits.
Sources:
Ed Yardeni Says Stocks Could Face Trouble If Bond Yields Hit 6% — Stocktwits
Speaking to CNBC, the president of Yardeni Research said the 5.2% level on bond yields is not high enough to "kneecap" the stock market or the broader economy. But he identified 6% as the line where investors would get seriously cautious.
"We'd all start to get concerned if we got as high as six," Yardeni said, pointing to the possibility that higher interest rates could eventually open cracks in credit markets.
How cracks could form
Yardeni described the typical danger sequence: rising rates put pressure on financial markets, which can trigger a credit crunch that then leads to a recession. But he added that he does not believe the economy is currently in that kind of business-cycle environment.
His case for optimism rests on the economy's growth. Yardeni highlighted nominal GDP growth of 6.6% year over year in the second quarter, arguing the economy should remain on solid footing as long as bond yields stay below the pace of nominal growth.
Why he's still bullish
Despite rising yields, Yardeni said the backdrop for equities remains supportive. Earnings were "absolutely fabulous" in the first half of the year, he said, and he expects that momentum to continue — calling it "definitely an earnings-led bull market."
He also made a valuation point: stocks have actually become cheaper since the start of the year because earnings have grown faster than the S&P 500 itself. Valuation multiples are something investors should watch in the near term, he said, but his longer-term view on earnings is positive.
Yardeni flagged the remaining risks: a rebound in oil toward $100 a barrel, sticky inflation that could force the Federal Reserve to do more on interest rates, the federal deficit, and the amount of AI-related corporate debt. Concerns about oil had largely played out in the market by mid-September, he said, but the situation remains fluid.
At the time of the report, the 10-year Treasury yield hovered around 5.165% while the 30-year yield stood near 5.49%. Retail sentiment on the S&P 500 ETF was in "extremely bullish" territory, according to Stocktwits.
Sources:
Ed Yardeni Says Stocks Could Face Trouble If Bond Yields Hit 6% — Stocktwits
