S&P 500 Rally Faces Interest Rate Risk as Treasury Yields Rise
The S&P 500 ended above 7,500 for the first time and keeps the next target of 8,000. The AI boom continues to support the rally and technology and megacap stocks have rallied on solid profit expectations.
The interest rate expectations also impact the rally in S&P 500. Investors may see lower equity prices as higher rates reduce the future earnings. They can also drive up the price of funds for companies and lower investor interest in high-priced growth stocks.
This next labour market report will be important. If payrolls are better than expected, investors could be concerned about an overheating economy. If the number of jobs is above 150,000, it will support the US Treasury yields. This scenario supports the possibility of higher interest rates and correction in the equity market from the record high. But a softer number could help quell some fears of rate hikes, while heightening concerns about slower growth.
This creates a narrow path for S&P 500. Stocks need enough growth to support earnings, but not so strong that the Fed shifts into hawkish mode.
From technical perspective, the S&P 500 has broken the 7,000 level after forming a V-shaped recovery pattern above the 6,200 support level. This breakout has opened the target of the 8,000 level, which is the resistance of the ascending broadening wedge pattern.
