Stocks
investors increasingly view a rapid move toward 5% as a level that could prompt traders to reduce risk and put fresh pressure on equity valuations.

U.S. stocks have continued to climb despite a sharp rise in Treasury yields, but investors are becoming more cautious as the benchmark 10-year yield approaches 5% and the earnings season that helped support the market comes to an end.

The 10-year Treasury yield reached about 4.79% this week, up more than 80 basis points since the start of March and its highest level since November 2023, while the S&P 500 remains up more than 11% in 2026. Reuters detailed that investors increasingly view a rapid move toward 5% as a level that could prompt traders to reduce risk and put fresh pressure on equity valuations.

That concern is growing as the second-quarter reporting season winds down, removing one of the strongest supports for stocks this year. Corporate profit growth has repeatedly helped investors look past higher rates, geopolitical risks and concerns about government borrowing, but Truist Advisory Services chief investment officer Keith Lerner told the outlet that macroeconomic factors are likely to command more attention once earnings are no longer dominating the market.

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The rise in yields has been driven by several forces at once, including persistent inflation, large government borrowing needs, stronger-than-expected economic activity and renewed pressure from higher oil prices. BlackRock Investment Institute said this week that sticky inflation, heavy public borrowing and growing private investment needs give investors little reason to expect pressure on long-term yields to fade soon.

A 5% yield also matters because Treasurys begin offering a more attractive alternative to stocks while borrowing becomes more expensive for companies and households. The 10-year yield last touched 5% in October 2023, when equities were under broad pressure, and strategists told Reuters that highly leveraged companies or businesses dependent on refinancing could feel particular strain if yields remain near that level.

Equity valuations leave less room for error than they have historically, even after falling from the elevated levels seen at the start of the year. The S&P 500 was trading at about 19.7 times expected earnings on Monday, according to LSEG Datastream figures cited by Reuters, down from 22.2 at the beginning of 2026 but still above its long-term average of roughly 16.

Technology and AI-linked stocks may be especially sensitive because much of their valuation depends on profits expected far into the future. Higher discount rates reduce the present value of those earnings, while the enormous capital spending tied to data centers, chips and power infrastructure is also increasing demand for financing. BlackRock said the AI buildout remains a major source of capital demand even as higher borrowing costs make investors more selective.

The bond selloff intensified again Wednesday as crude oil remained near $95 a barrel and investors increased bets on tighter Federal Reserve policy, with the 10-year Treasury yield moving above 4.8%. The Wall Street Journal reported that traders were assigning about a 69% probability to a Fed rate increase this month.