As of January 17, 2025, the U.S. stock market is experiencing significant pressure from rising Treasury yields, coinciding with the upcoming inauguration of Donald Trump. The Nasdaq composite and S&P 500 indexes are currently below their recent highs, reflecting geopolitical concerns and a hawkish Federal Reserve.
The latest jobs report indicates robust labor demand, which has reduced expectations for rate cuts in 2025. Annual inflation remains stubbornly high at around 3%. Following recent producer price index and consumer price index reports, the 10-year Treasury yield decreased from 4.79% on January 13 to 4.62%, although this is still above the September low of 3.63%.
Nicholas Colas from DataTrek Research noted that the current yield levels are rarely seen, last observed in mid-2007. He suggested that while the economy can manage 5% yields, equity markets may struggle.
Analysts emphasize that for a broader market rally beyond technology stocks, yields must decrease. Rising yields could hinder sectors like consumer discretionary and real estate, which are sensitive to borrowing costs.
Investor sentiment remains cautious as potential policy changes from the Trump administration, including tariffs and immigration reforms, could further impact market dynamics. The upcoming political challenges regarding tax cuts and fiscal spending are also contributing to market unease.
Source: Investor's Business Daily, January 17, 2025