Near record highs, stocks face fresh test from bond yields

Key Points:

• The S&P 500 secured its eighth consecutive weekly gain, marking its longest winning streak since 2023, driven by strong corporate earnings and enthusiasm for AI despite geopolitical tensions in Iran.
• US Treasury yields have risen to their highest levels in a year, reflecting expectations of steady Federal Reserve interest rates amid inflation concerns fueled by high oil prices and the ongoing closure of the Strait of Hormuz.
• Rising Treasury yields increase borrowing costs, which could dampen consumer spending and housing affordability, presenting a potential headwind for the stock market's continued rally.
• The S&P 500's gains are concentrated in a narrow set of large-cap technology and AI-related stocks, with an equal-weighted version of the index showing much weaker performance, highlighting uneven market strength.
• The market's future trajectory hinges on inflation trends and economic growth; persistent high oil prices and inflation could push yields higher and pressure stocks, while sustained economic growth might help the market absorb rising borrowing costs.