Wharton professor Jeremy Siegel warns rates are near levels that could derail earnings-fueled stock gains

Interest rates are inching closer to the danger zone for stocks, Jeremy Siegel warns.

The top economist and Wharton professor of finance said that in the bond yields are near levels that have historically posed challenges for equities. He pointed to the 10-year inflation-adjusted Treasury yield, which ticked up to 2.43% at the end of July, according to Fed data.

Siegel said he was looking in particular at the spread between the inflation-adjusted Treasury yield and the inflation-adjusted market yield, which he estimated to hover around 5%.

Inflation-adjusted Treasury yields remaining lower suggests stocks still have an edge over bonds on the basis of returns, but the appeal of equities could diminish if rates move much higher, he told CNBC.

“Not yet a threat, but if we see those real yields continue to rise, there’s no question,” Siegel said. He added that yields also threaten a major driver of stock gains that investors are counting on.

“If those interest rates go up, whatever earnings are, that might not be enough to offset,” he added of the potential for moves in the bond market to weigh on an earnings-fueled rally.

Bond yields have surged in recent months, a sign investors are becoming more jittery about the inflation outlook and are pricing in higher rates from the Fed as the economy deals with pricing pressures spurred by the Iran war and higher oil prices.

The 10-year US Treasury yield ticked up to 4.7% last week, the highest since January 2025, as Brent broke back above $100 a barrel.

Investors also expect rates to tick higher from here. Markets are pricing in at least one or two more rate-hikes by year end, and are pricing in a 36% probability that the Fed could raise rates at this week’s policy meeting, according to the CME FedWatch tool.

Other forecasters on Wall Street have flagged that interest rates look to be approaching levels that could create problems for stocks, with HSBC warning recently that long-end yields had “clearly breached the Danger Zone.”