Stocks Keep Rising—Even as Yields Hit 4.5%
Here’s something that’s baffling a lot of traders right now: the stock market just won’t quit, even though 10-year Treasury yields are pushing toward 4.5%. That’s not what the textbooks said would happen. Historically, when bond yields go up—especially to these levels—stocks are supposed to come under real pressure. Yet in 2025, the script has flipped. Instead of panicking, investors are still piling into equities, and indices like the S&P 500 keep notching double-digit gains.
Why are bond yields rising so fast? Mostly, it’s the “usual suspects.” Concerns over ballooning U.S. deficits have everyone pointing fingers at politicians, while new tariffs have stirred fresh anxiety about growth. Last May, the 10-year Treasury yield briefly skimmed 4.5% before easing back slightly, a level that just a year ago would have scared a lot more people out of stocks. But something’s different this time around.
Analysts at Goldman Sachs recently dug into the numbers, and what they found is eye-opening. When 10-year yields have hovered in the 4%-5% range in the past, the S&P 500 showed median annual gains of about 11%. That’s hardly the doom-and-gloom scenario you’d expect. There’s no reliable pattern linking those high yields with poor stock performance. That’s left money managers rethinking how they weigh bonds versus stocks in their asset mixes.
Traditional Correlations Get Tossed Aside
In theory, when Treasuries get hammered and yields spike, they’re supposed to act as a safety valve—protecting portfolios when equities hit turbulence. But that’s just not happening right now. “The usual relationship is broken,” one strategist at JPMorgan said. Treasuries aren’t providing the usual shelter, especially with oil prices stumbling and some signs pointing to a global economic slowdown.
Instead, equity markets are drawing strength from somewhere else: solid corporate earnings. Even with rates up, a lot of big companies are still raking in healthy profits and beating analyst forecasts. That’s enough to keep the optimism alive, even as other parts of the market get shaky.
Bonds, meanwhile, aren’t all bad news either. Morgan Stanley points out that bond returns—especially for investment-grade debt—look a lot better than in 2024. If you stick to quality, you’re in decent shape, though high-yield, riskier bonds are struggling to keep up and could top out around 8% returns. Charles Schwab is telling clients there are real opportunities if you’re careful, warning that longer-dated Treasuries can still be a wild ride in this climate.
The big picture: traditional market playbooks are out the window. The old patterns—stocks falter when yields spike, bonds are always a safe haven—don’t apply in 2025. Investors are finding that macro risks don’t hit every asset class the same way anymore, and staying nimble matters more than ever.