Rising 10-Year Yield Nears 5%, Pressures Markets as S&P 500 Struggles in High-Rate Climate

Labor Market Strength Upends Rate-Cut Hopes

December’s payroll report painted a picture of economic resilience, with 256,000 jobs added—far outpacing the 155,000 forecast. Meanwhile, the unemployment rate dipped to 4.1%, further defying projections.

This unexpected strength drove the 10-year Treasury yield to 4.79%, its highest level since late 2023, as traders recalibrated expectations for Federal Reserve policy. Before the report, markets had anticipated rate cuts as early as March.

Now, traders largely expect the Fed to hold steady until midyear, or possibly longer. This shift in sentiment has placed the 10-year yield on a path toward testing the psychologically significant 5% threshold—a level that could amplify market turbulence.

Why High Yields Spell Trouble for Stocks

The persistence of a 4%+ yield is a headwind for equities, particularly growth stocks and sectors reliant on cheap capital. Higher yields make bonds more competitive compared to stocks, drawing capital away from riskier investments.