U.S. Stocks Under Pressure as Treasury Yields Near 5%. When Will the Rally Return?

By Chancy

U.S. stocks kicked off September under pressure, with all three major indexes moving lower and technology stocks leading the decline. The Nasdaq had already suffered a roughly 10% pullback before rebounding sharply in August on AI optimism and strong earnings, but the market has recently weakened again.

Escalating U.S.-Iran tensions have pushed oil above $90, while Warsh’s hawkish Jackson Hole remarks have fueled rate-hike expectations. Meanwhile, the 10-year Treasury yield is approaching 4.8%, closing in on its 2023 peak of around 5.02%.

So how much longer could this correction last—and when can U.S. stocks regain their upward momentum?

Why Are Yields Approaching 5% Again?

Rising oil prices have revived inflation concerns, while Warsh’s hawkish message has pushed the probability of a September rate hike to roughly two-thirds, up from around 35% before his speech.

U.S. fiscal deficits and heavy Treasury issuance are adding pressure on long-term rates. Reuters noted that the global bond selloff has been driven by inflation concerns, monetary tightening, fiscal pressures, and rising bond supply.

The pressure has also spread globally. Japan’s 10-year yield has broken above 3% for the first time since 1996, while UK and German yields have also climbed sharply. Higher Japanese yields make domestic bonds more attractive and could reduce demand for overseas debt.

The cost of capital is rising across global markets.

Why Are Tech Stocks Holding Up?

Higher rates compress tech valuations, but this year there is a powerful offset: earnings growth. Nvidia’s latest results and strong FY2028 outlook have reinforced confidence in AI demand, while strong software earnings have provided further support.

In 2022, technology stocks faced rising rates + falling earnings expectations. Today, the market is closer to a tug-of-war between higher rates and strong AI earnings growth. As long as EPS keeps expanding, tech stocks have more room to absorb higher yields.

That helps explain why the Nasdaq recovered so quickly from its earlier 10% correction.

The Next Number to Watch Is 5%

The most important number from here may be 5% on the U.S. 10-year Treasury yield.

In October 2023, the 10-year yield peaked near 5.02% before falling sharply, helping fuel a powerful tech rebound. Now the market is approaching the same level again.

Reuters’ latest technical analysis identifies 4.809% as immediate resistance, followed by the 2023 peak of 5.021%. A breakout could put 5.333% in focus next.

If the 10-year yield peaks around 5% and falls back below 4.8%, bond-market pressure should begin to ease. A move toward 4.5%-4.6% would create a much more favorable backdrop for tech valuations.

The Fed does not need to cut rates. If long-term yields simply stop rising, that could be enough for tech valuations to recover.

But a sustained break above 5.02% would raise the risk that the long-term U.S. interest-rate regime is shifting higher, potentially triggering another round of multiple compression.

What Does This Mean for Investors?

Two levels now matter most: 5% on the 10-year Treasury yield and the Nasdaq’s previous correction low.

If the 10-year tests 5% while the Nasdaq holds its previous low, the bond market is getting worse, but tech stocks are no longer making new lows. A turn lower in yields could quickly restore upside momentum.

If the 10-year breaks above 5.02% while the Nasdaq also falls below its previous low, the correction likely has further to run.

Ultimately, the next leg for U.S. stocks may depend on whether the 10-year Treasury yield can finally stop around 5%.

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