Goldman Sachs sees 4.30% in 10-year yields as a line within the sand for danger urge for food

In my view, US stocks have been able to rally with yields rising because the market has priced out the risk of a recession while pricing in a larger Fed put in light of Powell’s willingness to pull the trigger on a 50 basis point cut.

That’s a powerful combination but stocks have rallied 9% and election risks are on the horizon. Moreover, US 10-year yields have jumped, which is something that will weigh on real economic activity, particularly in rate-sensitive sectors like autos and real estate.

ZeroHedge highlights a Goldman Sachs note that looks at how far yields have to move to weigh on stock markets.

“Historically, a 2 SD move in US 10 yr yield, equivalent to around 60 bps today (3yr lookback), over a month is when equity market returns are below avg. Given we’ve moved 46bps MTD, this simple rule of thumb argues that a move towards 4.30% is where things would get tricky for stocks”

That leaves about a 10 basis point cushion, which I think is a tough hill to climb in the next week.

That’s a rule of thumb, as they say so take it with a grain of salt. At the moment, I’ve been impressed by the resilience in stock markets today. There are worries building but there certainly wasn’t a rush to the exits today when futures were poor.

I am starting to worry more about housing with 30-year US fixed rates up to 6.85% from a low of 6.11% on Sept 11. I think we need to get back down to those lows or there will be pockets of trouble in the US housing market by mid-2025.