US MARKET CALL: Stocks Ignoring Bonds, For Now

The 10-year US Treasury bond yield has climbed above 5.25%, and the S&P 500 hasn’t flinched. The stock index is just 2.2% below our year-end target of 7,900. It could overshoot our target in the coming days now that crude oil shipments from the Persian Gulf producers reportedly are averaging around 98% of pre-war totals, excluding Iran. Producers and shippers have found workarounds to their usual Strait of Hormuz routes, including alternative pipeline routes, ship-to-ship transfers, and naval-escorted night transits.

The question is: How long stocks can ignore bonds if yields keep rising despite lower oil prices? If yields are simply repricing to reflect stronger-than-expected economic growth, then earnings will remain strong. The downside risk is to the stock market's valuation multiple if bond yields are rising on concerns about mounting government debt, possibly exacerbated by the unwinding of the yen carry trade.